It is difficult to imagine a world without fixed prices. Consider how long it would take to buy groceries if customers had to haggle over the price of every apple and loaf of bread. Although the convenience of fixed prices may seem obvious to Western readers today, their pervasiveness is somewhat surprising given the dominance of the Price System of Exchange.
In Price Systems, each economic exchange is viewed as an independent interaction between buyers and sellers, who are assumed to compete for the lowest possible price for a desired good. In the purest systems, we would expect goods to have variable prices, which depend on the current conditions of the market, supply and demand, production costs, quality of the product, and other contextual factors. So why do we have fixed prices? It turns out that this pricing policy was invented by a religious group for a decidedly moral purpose.
The early Quakers were the first to implement a fixed pricing policy, and this decision largely reflected their frustration over the Puritans’ failure to implement popular religious, economic, and political reforms. The Quakers were particularly frustrated with the merchant practices of the day, which included price setting, haggling, and “cozening and cheating, and defrauding.” They believed that the fixed pricing system would promote honesty and eliminate the greed that was so pervasive in their communities. Importantly, the fixed pricing policy also reflected the Quaker’s religious belief that all people were equal before God; they reasoned that if everyone was equal, everyone should pay the same price. At first, this policy had a negative impact on Quaker merchants, whose customers were suspicious about their refusal to bargain. However, customers eventually developed trust in the Quakers’ honest business practices, and their fixed pricing policy began to spread outside the community.
In the contemporary, the fixed price system is dominant in the Price System of Exchange. In many Price contexts, fixed pricing seems like an instrumentally rational policy because it makes transactions more efficient. However, in other contexts, the efficiencies gained by fixed pricing may be offset by the loss of potential profits from variable pricing schemes. The dominance of fixed prices in retail exchanges, then, seems to be a vestige of an earlier Moral System of Exchange rather than the instrumentally rational policy of the contemporary Price System.
The Quakers adopted fixed prices in order to support their values for honesty and equality, not because it would give them an advantage in the market; indeed, it was an unintended and fortunate side effect that their businesses eventually thrived. In this way, the fixed pricing policy was born out of a Moral System of Exchange but came to be associated with the Price System as it gained wide acceptance in other markets.
The history of fixed pricing systems offers a few insights for scholars of the economy. First, it provides an example of how substantively rational elements of an exchange system can transform into taken-for-granted elements of instrumentally rational exchange.
Furthermore, it demonstrates the social construction of Western pricing systems and undermines a priori assumptions about their superiority to other systems; in comparing fixed pricing schemes to the bargaining systems common in non-Western countries, we should be careful not to dismiss the latter as inherently less rational. By understanding the historical development of Western economies, we can understand non-Western business practices not as deviations from an idealized (Western) market but as separate systems which also developed from historically contingent logics of action and exchange relations.
Image by LukeBlacks.
References:
Kent, Stephen A. (1983). “The Quaker Ethic and the Fixed Price Policy: Max Weber and Beyond.” Sociological Inquiry 53(1): 16-32.
Fox, George. (1658). A Warning to All the Merchants in London and Such as Buy and Sell with an Advertisement to Them to Lay Aside Their Superfluity and with it Nourish the Poor. London: Thomas Simmons.
Weber, Max. (1958). From Max Weber: Essays in Sociology. H. H. Gerth and C. Wright Mills (ed.) New York: Oxford Press.
Fox, George. (1661). The Line of Righteousness and Justice Stretched Forth Over All Merchants, etc. London: Robert Wilson.
Biggart, Nicole and Rick Delbridge. (2004). “Systems of Exchange.” Academy of Management Review 29(1): pp. 28-49.