What if, one Tuesday afternoon, when the new shipment of recycled paper towels arrives at your corner grocery, due to some cosmic accident with the price gun, the clerk accidentally prices towels that are supposed to cost £1.69 a roll at £3.39 a roll?

Do consumers notice? Are they still bought? Is the equilibrium in the local recycled paper towel market upset?

Prices are the mechanism that relate supply and demand and bring a market to equilibrium. If a product is priced too high, the item will not sell and the seller will reduce the price or stop carrying it. Alternately, if the seller sets the price too low and many people buy the item, the seller will raise the price to keep up with demand.

In either of these two ways, supply and demand are brought into equilibrium. But what happens when there is an accidental increase in the price of a good? What if people, in certain markets, kept buying the good anyway because they did not notice? If this is the case, small businesses might want to start behaving differently in their pricing decisions. They might want to institute a policy of random overpricing of goods.

In the example of the recycled paper towels, the consumer can either notice or not notice the change in price. What are this customer's options if he notices the change in price?

He can (1) decide not buy the recycled paper towels and instead buy another brand of paper towels, perhaps non-recycled ones; (2) not buy any paper towels; (3) remove all the items from his cart and go home because he has suddenly become dismayed that the store he is in is so unreasonably overpriced; or (4) suck it up and buy the expensive recycled paper towels.

Which option the customer decides upon depends upon a number of factors: his proximity to other stores, his salary, how much money he has on hand, the amount of free time he has to frequent another store, his ethical commitment to buying recycled paper goods, his commitment to the store with the expensive paper towels and his need for paper towels.

Alternatively, the potential customer may not ever realize that the paper towels are overpriced. In this case, the customer does not look at the price tag or notice that the towels cost more than they usually do. We might call this the ignorance option (5) – a customer that always purchases their weekly groceries at this store and has a routine. They may have originally made decisions about which brands were too expensive, but now they just buy what they always buy, not looking at price tags. If many of the consumer's goods are overpriced, however, then they might notice that their total at the register is much larger than normal and then reconsider their purchasing decisions.

In cases (1) or (2), the store will be alerted that the recycled paper towels are priced to high and will reduce the price. If £1.69 was the local equilibrium price, the store will presumably keep reducing the price to this level and no further. In case (3), the accidental over pricing has implications beyond just a drop in sales of recycled paper towels.

If customers react as strongly as this to an overpricing, stores should be extra careful in their pricing, and if they feel prices need to be increased, they should be done on an incremental basis in an attempt to prevent the branding of their store as "too expensive." In case (4) the store will receive no signal and thus leave the price high.

If this occurs, it suggests that the price was not at equilibrium before the accidental increase and that the higher price is closer to the equilibrium price since there is still demand for the paper towels at this price. In case (5), £3.39 is not the equilibrium price of the paper towels, if consumers paid attention to price, but they are purchased anyway.

If a store has consumers such as these, they can increase their profits through random overpricing. However, they must take care not to overprice everything, or the consumer might take notice and brand the store as "too expensive." The trick for the store, then, is to create situations where (5) holds and (1), (2) and (3) do not. We suggest that this can be effectively done through modest random overpricing.

In essence then, whether the price mechanism works in the case of the overpriced recycled paper towels depends first upon whether the customer knows that the paper towels are overpriced. What should a storeowner do? My advice to him: randomly overprice one item each week. Change which item is overpriced from week to week and see what happens. Maybe the price mechanism will not work and the store will make several dollars of extra profit per week.

Of course, this little thought example brings up the question of how stores actually price their items. A question and answer session on Entrpreneur.com sheds light on this when Rosalind Resnick writes, "[s]etting prices has always been more art than science. Set your prices too high, and you scare customers away. Set your prices too low, and you lose money on every sale.

Amazingly, most business owners still set prices the old-fashioned way--by charging the same as the guy down the street." That is, one way business owners might set their prices is just to look at how much other people in their market are selling similar products.

However, it is possible that consumers would be willing to pay more for some items in order to avoid travelling to another store, for example, and just taking prices from someone else might generate lost potential profits to the store.

Following on this idea, a report on starting a convenience store by Canada Business Service Centres (CBSC) suggests convenience store owners should follow "one of two pricing methods: mark-up – based on cost – or margin – based on selling price. Convenience stores simply cannot buy in large volumes like superstores, so do not attempt to offer lower prices. Instead, stress service and convenience".

These are sensible ways to set prices. But the point we want to conclude with is that nowhere will you find a recommendation that stores randomly overprice its goods as we have suggested above. That is, the store overprices – perhaps using standard deviations – one item per week and changes what item that is from week to week.

It is surely a pity that no one has advised store owners to price their goods in this manner for it might – and we stress the word might – lead to a few more business owners staying in business and shedding their surplus on society. We are not advocating a revolution in pricing strategies, but a shift towards some kind of honesty and perhaps even decency.