Unjustified prices: environmental drivers of managers' propensity to overprice

Ideally, a product's price should strike a balance between extracting value for a firm and sharing some of that value with customers. Charging less than what is warranted by a product's value leaves money on the table, but far greater long-run harm to the brand is caused when managers charge more than what is justified by the product's benefits. This study examines the effect of environmental- and firm-level factors on managers' judgment when setting prices. Using data collected from brand managers of major consumer goods companies, we found that managers are more inclined to charge unjustified prices in environments with less intense competition and in business units with a strong technological orientation. Brand strength is also positively related to the propensity to overprice, but this relationship diminishes as the brand becomes stronger.