Ethical differentiation and market behavior: An experimental approach

Does ethical differentiation of products affect market behavior? We examined this issue in triopolistic experimental markets where producers set prices. One producer's costs were higher than the others. In two treatments, the additional costs were attributed to compliance with ethical guidelines. In the third, no justification was provided. Many consumers reduced their experimental gains by purchasing the ethically differentiated products at higher prices. Individual differences were important (business/economics students paid smaller premia). Finally, we speculate about the observed “demand function” for ethics and emphasize using experimental methodology to complement empirical studies in assessing markets for ethically differentiated products.