Überpricing

Überpricing, or overpricing, is the practice of setting prices that are judged excessive relative to the cost of production, the product’s value to consumers, or established market norms. In economics, überpricing often arises when sellers hold market power, face limited competition, or can exploit information asymmetries. It is not simply high prices due to inflation or universal supply and demand; it implies prices above a reasonable benchmark and potentially above marginal cost.

Prices can be higher through monopoly pricing, price discrimination, dynamic pricing, premium branding, or bundling. Firms with differentiated products may price-effectively segment customers, charging higher prices to those with greater willingness to pay. Surge or peak pricing, often seen in transportation or hospitality, is another form of überpricing tied to temporary scarcity.

Examples include high pharmaceutical list prices despite low marginal costs, software with high fixed costs and low distribution costs, luxury goods, and goods or services priced during emergencies or shortages.

The welfare effects of überpricing are debated. It can fund innovation or investment but may distort consumption, reduce equity, and invite regulatory scrutiny. Economists measure pricing above competitive benchmarks using indicators such as the Lerner index (P−MC)/P or price-cost margins; these are approximations and depend on cost definitions.

Regulation may address überpricing through competition policy, price controls, or transparency requirements. Critics label it exploitation or rent extraction, while supporters argue it reflects scarcity, risk, and investments and can improve allocative efficiency in some cases.