Price competition is the core element of a free-market economy. Firms and organizations have been engaging each other in pricing behaviors like price fixing, price collusion, predatory pricing, deceptive price advertising, price confusion, resale price maintenance, and price discrimination amongst others (Grewal, and Compeau 3). These practices concerning pricing have a great impact on the public welfare. As a result, the government has taken the position of implementing legislation and judicial policies that aim at regulating the price behaviors in organizations. Other agencies that monitor pricing include the federal and local government. According to Grewal, and Compeau (3), the pricing practices are regulated to avoid the manipulation of customers by firms. It should be known that pricing practices have direct impacts on particular markets, consumer welfare, and the economy. The paper will address the pricing within the channel that entails price fixing and predatory pricing. Furthermore, the paper will discuss the pricing across channel levels that comprises of price discrimination, retail price maintenance, and deceptive pricing which entails comparison pricing or bogus reference, scanner fraud, and price confusion.
Predatory Pricing
Pricing within channel levels is composed of price fixing and predatory pricing. When firms participate in pricing behaviors, the pricing concepts have a significant effect on the public welfare. The pricing behaviors that occur within channels levels are price-fixing and predatory pricing. A predatory pricing behavior is apparent in various market structures. The objective of predatory pricing is to lower the prices, especially below costs in an attempt to maximize profits in the long term by putting the competitors from the market. The practices associated with this pricing behavior are setting prices shy of the expenses, price discrimination, and price warring.
The most provocative issue is considering what forms the predacious behavior. For instance, pricing below the costs to reduce the extra stocks of goods is not perceived as predation. Though, pricing beneath the expenses with the aim of driving competitors is viewed as predation. Therefore, pricing below costs can be interpreted differently, based on the purpose. Continuous study on the pricing behavior is a necessity to get a glimpse of those marketing techniques that often precedes predation. Nollert (289) views that Sherman Act is significant in addressing the concept of public policy within channels.
Firms, corporations, and companies are sometimes predators, even though they were accruing a high turnover at the product’s present price. Additionally, some firms may be associated with a low-cost structure than their rivals due to the benefits achieved by several methods. The free-market economy may be impossible in the absence of other predatory market prices. Furthermore, more research is essential to determine the consumer behavior.
Sellers are also discouraged from using predatory pricing on the essence of amassing more annual turnovers or punishing a competitor. Predatory pricing discouragement shields the small sellers from the established retailers who might sell the merchandises lower than the costs temporarily or intentionally drive them out of the market.
Price Fixing
Price fixing refers as an agreement among the firms and companies to set prices or offering services without consultations between each other. Sherman Act is significant in addressing the concept of public policy in pricing strategies. Büthe (214) views that the Sherman Act seeks to streamline price fixing within the channels. Price fixing is triggered by situations where sellers of the same product to assure that the economically vulnerable consumers can buy the products at the ‘fair price.'
The pricing-fixing schemes are executed in secret, and they are difficult to unearth. However, the pact can be revealed from the unintended evidence. The encouragement to rig prices can trigger tensions when a particular competitor announces publicly that it is ready to terminate a price war if its rival is willing to do so. The conditions outlined are so appropriate that the rivals may perceive this as an offer to set prices mutually. Cartels may be more susceptible to decline if the demand slows down. The cartels are more likely to develop when the interest rates are significantly lower.
The antitrust laws require that each firm sets prices and other conditions on its own, with the absence of agreement among the competitors. In the situations that the consumers, make options on the products and services to purchase, they anticipate that the price is influenced by the market forces of demand and supply. Higher prices occur when the competitors agree to prevent competition. Price fixing is a major concern for the government antitrust laws.
Büthe (214) asserts that The Sherman Act of 1890 is influential in hindering competitive pricing among the market structures. The act is at the forefront of making it illegal for firms from talking and reaching a pact about the prices or the market composition. Nonetheless, the Sherman Act asserts that any agreement among the cartels that is based on the prices they would charge is unenforceable. Büthe (215) addresses that the antitrust laws of the various nations focus on justifying that a firm is wrongful for price fixing. These laws do prove that it has had conversations with the relevancy with the majority of the competitors and reached a decision on the prices that they will charge. Nevertheless, without proper communication, price fixing can be prosecuted, although it is uncommon (Ibid).
Pricing across channel levels, on the other hand, comprises of price discrimination, retail price maintenance, and deceptive pricing which entails comparison pricing or bogus reference, scanner fraud, and price confusion.
Price discrimination
Grewal and Compeau (7) asserts that price discrimination is highly associated with numerous public policy issues. Unfair competition results from charging different prices to clients who are involved in competition, or to clients whose clients are in the competition. Moreover, the introduction of value pricing had led to the development of anticompetitive discriminatory pricing to the consumer level (Grewal and Compeau 7). It occurs when products are priced differently for diverse market segments. An unfair price discrimination means that the sellers set different price, terms of clients from a specific manufacturer. The sellers can also produce the same product with different qualities for different retailers. The seller needs to convince the public that these differences are proportional. Is there consumer harm when unlike prices are charged exclusively when the users value the product differently? For example, it is perceived that the consumers are hurt when similar drugs are offered at different prices based on the threat of the disease for the consumers. Furthermore, there have been incidences of age and gender discrimination in the market.
Retail price maintenance
Retail price maintenance entails the decision of the manufacturer to push dealers to charge a fixed retail price for the goods and services offered. Even though the seller values the price suggested by a manufacturer, the seller can still proceed to offer its product to dealers who are involved in independent pricing action.
The retailer-consumer issues are also prevalent since the retailers have developed numerous ways to offer price information to the target market. Grewal and Compeau (7) asserts there are public policy issues involved in retail price. First, the public wonders whether the advertised price is sincere because, in most incidences, deception occurs. Another issue between the retailer and the consumer involve the application of the Universal Product Code (UPC) systems and scanners to read the fixed price at the counter. The last issue involves the extent to which pricing practices can result in substantial confusion.
Deceptive pricing
Deceptive pricing is whereby the seller introduces prices that misinform customers or state price savings that are out of reach (Grewal and Compeau 9). Other types of deceptive pricing involve discount sales and clearance sales that assure reduced prices. For instance, a retailer can mark an item that costs $80, and then after a few days, increases the price by 100% to become $160. Then, the retailer announces 50% off, to make the price reduce to $80 once again. In this manner, the retailer is using deceptive means to try and convince the customers they have the best deal. Such practices are not allowed by business laws. When such cases are reported, the retailers can be prosecuted due to violations of the civil codes.
Scanner fraud issues
Recently, scanner-based computer checkouts and UPC coding have been associated with numerous complaints from the consumers. The clients have been complaining that retail stores and supermarkets take long before updating the reduced prices on their systems. At the same time, it has been said that the clients are overcharged in the products purchased. Stores are using this strategy to increase their profits, especially in situations associated with managerial weaknesses.
Price confusion
Price confusion involves the concept of using numerous and continuously changing pricing structures to confuse the target market not to understand the exact price. Price confusion may result from charging different prices depending on location and delivery timescale, offering low-star prices for services, introducing regular special prices, offers, and discounts. Moreover, it can take place when price varies with seasonal demand, accept the negotiating of prices by sales persons, and distribute varying vouchers that offer altered discounts.
Conclusion
As expounded above, price fixing and predatory pricing have proved to be emerging pricing behaviors within channels. On the other hand, price discrimination, deceptive pricing and retail price maintenance as pricing behaviors across channels. The Sherman Act reveals that competitive pricing is illegal in the various market structures. In addition, the firms should charge similar prices, irrespective of their size and the companies cannot state the price a retail vendors the products and services for.
Work cited
Grewal, Dhruv, and Larry D. Compeau. "Pricing and public policy: A research agenda and an overview of the special issue." Journal of Public Policy & Marketing (1999): 3-10.
Büthe, Tim. "The Politics of Market Competition: Trade and Antitrust in a Global Economy." (2014): 213-232.
