Blind Man's Bluff: The Ethics of Quantity Surcharges Omprakash K. Gupta Anna S. Rominger ABSTRACT. Empirical evidence, including a recent field study in Northwest Indiana, indicates that supermarkets and other retail merchants frequently incorporate quantity surcharges in their product pricing strategy. Retailers impose surcharges by charging higher unit prices for products packaged in a larger quantity than smaller quantity of the same goods and brand. The purpose of this article is to examine the business ethics of such pricing strategy in light of empirical findings, existing government regulations, factors that motivate quantity surcharges and prevailing consumer perceptions. 1. Introduction A consumer is subjected to a quantity surcharge when the unit price of a product packaged in a larger quantity is higher than the unit price of the same product and brand packaged in a smaller quantity. Ample empirical evidence, including a recent field study in Northwest Indiana docu- mented by this article, indicates that merchants Omprakash K. Gupta is an Associate Professor of Management in the Division of Business & Economics at Indiana University Northwest. His research interests are in Operations Management, Management Science, Mathematical Modeling of Business Systems and Business Ethics. He has published several articles in national and internationaljournals. He has also reviewed papers for many journals and edited special issues. Anna S. Rominger is an attorney, a mediator, and an Assistant Professor of Business Administration in the Division of Business & Economics at Indiana University Northwest. Her research interests are negotiation, alter- native dispute resolutions, labor management relations, business ethics and professional liability. She has pub- lished articles in several of these areas. routinely charge quantity surcharges on groceries and other products. Shoppers who buy these goods often do so holding a contrary belief that the large economy size is a price value because they believe the unit price of goods packaged in larger quantities is less (Nason and Della Bitta, 1983). Since the practice of quantity discounting is so widespread, this belief that bigger is cheaper is amply demonstrated by the shopping behav- iour of most shoppers. As pointed out by Dickson and Sawyer (1990), this may be one possible explanation why most consumers do not even make price comparison within a specific brand. Their study also showed that about half of the shoppers were not even aware of product prices. Granger and Billson (1972) study showed that in a randomly selected group of shoppers about eighty percent believed that the smaller size laundry products were more expensive than larger sizes. Quite obviously, when consumers buy larger packages thinking that such products are cheaper, they make costly decisions and suffer financial losses (Cude and Walker, 1984). The disparity between actual retail practice and consumer knowledge and belief raises an important ethical question about such retail product pricing practice. The purpose of this article is to explore the ethical dimensions of quantity surcharges in the retail shopping envi- ronment. The organization of the rest of the paper as follows. In the next section, we review the existing literature relevant to quantity discount surcharge. The review will focus on studies on incidence of quantity surcharge, ratio- nale for quantity surcharge and consumer decep- tion. Section 3 is devoted to empirical findings of quantity surcharge in Northwest Indiana. In Section 4, we examine prevalent government Journal of Business Ethics 15: 1299-1312, 1996. © 1996 Kluwer Academic Publishers. Printed in the Netherlands.