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Studies on consumer behavior have found that most people value fairness enough that they will refuse...

Studies on consumer behavior have found that most people value fairness enough that they will refuse to participate in transactions they consider unfair, even if they are worse off as a result. How does this affect a firm's decision to raise prices in the event of a temporary increase in demand?

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Answer - When the customers are concerned about the fairness such that they will refuse to participate in transaction if it was unfair , the seller would be reluctant to change the price. This is because , if the seller raises the price on rise in demand , the customers would find it unfair to buy the same thing at greater price. Hence they would stop buying and the seller will have to face loss. Hence in the short run , he would not increase the price due to rise in demand to protect his customer base.

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