Ramadan, consumers and just pricing

Price hikes of essential goods during Ramadan has become a regular occurrence in Bangladesh. It is justified, from an economic point of view, that the prices will rise to some degree as demand for some particular goods increase during the holy month. Most often, however, the dominant reason seems to be that syndicates of opportunistic traders and importers raise the prices in several phases, before the government steps in to ensure fair prices. The opportunistic profit-seeking motive provides an ideal backdrop from which to discuss the justice of the pricing mechanism. Price hikes hurt consumers and change the relative distribution of resources and, as such, there is an inherent issue of justice that needs to be deliberated on.

Economist Bruno Frey and Werner Pommerehne found in a random survey that a rise in prices to cope with a situation of excess demand (such as that during Ramadan) is considered unfair by almost 80 percent of the respondents. These results demonstrate that people make normative assessments of price changes that are sensitive to factors beyond economic rationalisations.

The notion of just price has drawn the interest of economists since the medieval times. One of the more fascinating aspects of recent debates about just pricing has been the view that market price is the just price, except in extreme situations. According to this view, just price will simply be a function of the average of relevant previous exchanges and will vary according to shifts in the markets. However, there is a problem in accepting market price as the just price under the conditions of sustained shortage. In Ramadan, for instance, the market prices for necessary goods such as grain and meat shoot up to a level that poorer members find hard to afford. These prices are much higher than what many would see as a just price—namely the price which enables the majority of the population to afford these items.

The market price approach implies that when consumers purchase these goods at the increased prices, they do so if and only if they think it worthwhile to pay the requested amount. Thus, even if the consumers later discover that the vendor's wholesale costs were minimal and his profit large, they can hardly complain that what went on was an opportunistic decision that was unfairly made. This perspective is important as Nobel Laureate Amartya Sen argued in the context of famine, that famine is rarely a natural evil; his concern is with situations of sustained shortages wherein vendors charge prices that hinder universal access to these necessary goods. The significance of cases like Sen's is that the notion of market price as just is inadequate to the task of providing a plausible account of our normative intuitions regarding pricing.

Economic and political philosophers Adrian Walsh and Tony Lynch developed a motivationalist approach to just pricing solution, which focuses on the role of the profit motive in a market agent's motivational set, rather than the profit motive alone. According to this approach, the Ramadan price hikes are irksome to the consumers because of the inappropriately dominant role that the profit motive plays in the sellers' judgements, overriding other important moral considerations from a social welfare point of view. Such a motivationalist approach also explains what consumers find salient about pricing conventions in this area; a movement from the conventions uncovers motives that might otherwise be obscured from our view.

Asymmetry of information also plays a crucial role in this regard, because from a consumer's point of view, ease of obtaining information regarding factors that lead to changes in prices vary with different types of goods. For example, it is easier to justify price differences in products like mobile phones, computers, etc, which have different specifications, and information regarding global supply is easier to obtain from the internet and other sources. However, price changes of necessary commodities during Ramadan are harder to justify. Consumers cannot be reasonably sure whether the price changes are being driven by ill-intentioned syndicates or global supply-demand movements.

In conclusion, relying on unfettered market prices during times like Ramadan is an ill-advised policy move, as consumers are not appeased by economic justifications. Intervention programmes such as the Family Cards provided by the Trading Corporation of Bangladesh (TCB) will also have limited impact because of limited reach as well as the possibility that not all classes of people find it desirable to avail these cards due to social status implications. The dissatisfactions with rising prices can only be dealt with by taking steps to minimise opportunistic profit-seeking motives of the traders.

Mahir A Rahman is a research associate at Bangladesh Institute of Development Studies (BIDS).