Learning Objectives Chapter 12

6.) Discuss legal and ethical issues surrounding pricing.

• Government regulations of pricing- The U.S. government has limited price fixing, deceptive pricing, price discrimination, and dumping. State laws and the laws of other countries also constrain pricing.
  
  
• Price fixing - This is an illegal agreement among competitors to set the price of a product. A variant of this, called "resale price maintenance," involves forming agreements with retailers to sell a product at a given price to support the product's positioning strategy. This is also illegal. Outside the U.S. the laws may be different .
  
  
• Deceptive pricing - An illegal pricing tactic that involves misleading customers about the relative goodness of an asking price. An example is to price very high and then advertise a "price reduction."
  
  
• Price discrimination - this is the practice of charging different prices to buyers which do not reflect the cost differences to the seller. A seller offering promotional pricing must offer it to all buyers.
  
  
• Predatory pricing - A pricing approach which involves setting prices very low to hurt competitors. When the intent is to drive competitors out of business, it is illegal.
  
  
• Dumping - In order to gain market share, a company might price its product at or below costs. Imports are subject to anti-dumping laws in most countries.
  
  
• Ethics of Pricing- Some pricing tactics are legal but of dubious ethical value. Prices that confuse customers, pricing structures which encourage customers to buy features they don't need, etc., are considered unethical. Customers may also be cheated if they are given the impression by prestige pricing that a product is of high quality when it is not.
  
  
• Bait and Switch- Attracting customers with low-priced products and steering them to higher-priced products.