Question

Economists have traditionally assumed that consumers are rational: they use their incomes and time to make themselves as well off as they can. But recent research shows that consumers also want to be treated fairly. Surveys have found that many consumers believe it is unfair for firms to raise the prices of some goods after a sharp increase in demand (for example, following a tropical storm) while the same increase in price following a decrease in supply is deemed to be fair. How can this research explain why Walmart and Amazon have limited the sale of some items they sell and penalize price gouging by online sellers?

If required draw any graphs or cite references to substantiate your points.

Answer 1

The mentioned research explains the intricacies of the consumers' buying behaving and how consumer thinks before buying any good or services. It has helped the companies Walmart and Amazon in a way that, they contain their sellers who go for the price gouging or they can limit the sale of some goods, so that consumers do not make any negative proposition about these retailers and they protect their own brand perspective.

For example, Walmart goes with everyday low price (EDPL) where the consumers get while label standard quality products at low price. It helps company sell products in volume and earn profit. If they put higher price, while customers are in difficult time, then higher price as price gouging is going to build negative perception among the customers and they do not come back when the difficult time is over. Hence, they make limited supply of goods, rather increase in supply, so that there is no negative perception developed amon the consumers.

On a similar note, Amazon strictly prohibits its sellers from raising prices to be excessively high, as Amazon starts its planning with consumers at the center. Hence, the focus is to help customers, rather working to put higher price and develop negative perception among the consumers regarding the company brand. So, they punish those sellers also who go for the price gouging.