Is it unethical to increase the price of  service when the demand is higher?

Q:

I run a small services business.  Is it unethical to increase the price of  goods/product/service when the demand is higher?

 A:

Demand is higher and the assumption here is that supply is constrained – i.e. You cannot get more product or people to provide your services.

Sounds like you are thinking about demand based pricing.  This is not generally an unethical thing to do and can be seen in various common forms.  Bars have “happy hours” where alcohol is cheaper at times when there are less people going to the bar.  Airlines change their ticket prices for the same destination based on the seasons and time of the flight.  

One thing you should consider is how will your customers perceive you for demand based pricing.  Will your customers think you are price gouging them?  It is easier to offer discounts at low demand times, instead of creating premium prices at high demand times.

On the ethics question – general guideline

If the service/product is not essential to a community’s well-being or sustenance, then is it probably ok to raise prices in response to increased demand and limited supply. 

If the service/product is essential to a community (i.e. water, gas, food) and an event (i.e. hurricane, natural disaster) causes an increase in demand, then it is not ethical to increase the price to make more profit – (This assumes the cost of the product/service remains the same.  In these cases the cost of product might go up and then raising prices would be acceptable)