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

Daniel Kahneman, Jack L. Knetsch and Richard Thaler
The American Economic Review
Vol. 76, No. 4 (Sep., 1986), pp. 728-741
Stable URL: http://www.jstor.org/stable/1806070
Page Count: 14
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Fairness as a Constraint on Profit Seeking: Entitlements in the Market
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Abstract

Community standards of fairness for the setting of prices and wages were elicited by telephone surveys. In customer or labor markets, it is acceptable for a firm to raise prices (or cut wages) when profits are threatened and to maintain prices when costs diminish. It is unfair to exploit 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.

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