Transactional fairness and pricing practices in consumer markets

Lyons B & Sugden R

There is growing public concern about many ‘unfair’ pricing practices that are becoming common in consumer markets. We identify a mismatch between the welfare economic principles used by industrial and behavioural economists in analysing these practices and the normative perspective in which they are viewed as unfair. We develop a concept of ‘transactional fairness’, complementary to criteria of economic efficiency and distributional equity, based on the relationship between individual buyer and seller. It establishes clear principles with realistic information requirements that are appropriate for compliance by firms. Regulation based on this approach can help to restore public faith in markets.