During the 1870s some players discovered they could change a baseball’s trajectory at precisely the right moment. It just took a bit of spit.
Decades later they banned the spitball because it made for boring games. Fans wanted more action, more hits, more home runs. The owners did though have a fairness problem. The pitchers who specialized in spitballs would have disproportionally suffered from the decision. So they were grandfathered. They could keep throwing it, even after the ban started in 1921. For everyone else, the spitball was prohibited.
Where are we going? From spitballs to sanitizer and onward to what behavioral economists say about fairness.
Price Hikes
Consumers were angry when bottled water prices rose after the city of Boston briefly reported a contaminated water supply. None of us want contractors to raise prices after a hurricane. And similarly, there was an outcry when “retail arbitrageurs” bought hand sanitizer from local stores and then tried to sell it at much higher prices during the COVID-19 pandemic.
The standard economic response says that price hikes encourage producers to provide consumers with all they need. Otherwise, the market would not have enough to satisfy the quantity that is demanded.
So yes, demand says no and the laws of supply say yes to price hikes during emergencies. However, there is a third answer.
Our Bottom Line: Fair Prices
The third answer involves fairness. And, it makes buyers and sellers happy because both gain.
In a 1986 paper, researchers introduced us to the principle of dual entitlement. Simpler than it sounds, dual entitlement just refers to the fairness that both sides of a transaction require. Because consumers have a “transaction reference” from previous purchases, they believe there is a fair price for hand sanitizer or face masks. Sellers who want their business in the future know what customers expect to pay. To maintain their reputation and future goodwill, they exhibit fairness and do not raise the price. Only when their costs increase is a price hike acceptable.
Here is where spitballs and sanitizer are similar. Both require fairness from the group that has the power to determine a price.
My sources and more: I learned about fairness, the spitball ban, and dual entitlement from Dr. Katy Milkman’s always interesting Choiceology podcast. From there, I took a peek at the 1986 paper that introduced dual entitlement. (Nobel economics prize winners Daniel Kahneman and Richard Thaler were two of its three authors.).And then finally, this NY Times article asked about the morality of the pandemic’s PPE price hikes.
