CHAPTER EIGHT. Fairness as a Constraint on Profit Seeking: Entitlements in the Market

Community standards of fairness for the setting of prices and wages were elicited by telephone surveys. In customer or labor markets it isacceptable for a firm to raise prices (or cut wages) when profits arethreatened, and to maintain prices when costs diminish. It is unfair toexploit shifts in demand by raising prices or cutting wages. Several market anomalies are explained by assuming that these standards of fairness influence the behavior of firms. Copyright 1986 by American Economic Association.

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