Price Gouging Case Study

1146 Words3 Pages
bulb-icon

Recommended: Pricing tactics principles of marketing quizlet

ETHICAL ISSUES IN PRICING

The prices of products and services play a major role in determining how well they are going to sell. Ethical pricing strategies are adopted by the producers to earn profits without defrauding their consumers or competitors. Despite that, competitor's prices, availability, convenience and other factors tend to affect consumers’ impressions of fair prices. There are certain business laws, which protect consumers as well as competitors from the unethical pricing strategies that unscrupulous marketers attempt or wish to attempt. The businesses operating in today's competitive environment usually get tempted to try unethical pricing strategies to increase their profits as well as market share. But the companies with self-interest …show more content…

Price Gouging
Price gouging is a typical example of unethical pricing strategies. A company may try to raise prices of items, which are in high demand temporarily. This is evident in emergency situations such as when the prices of plywood jump after floods, even though there may be enough plywood for repairing houses.

2. Predatory Pricing or Price Cutting
Predatory pricing is the practice of selling products or services at quite low prices, in order to drive the competition out of the market, or to hinder the entry of the potential competitors. This involves pricing a product low enough in order to dampen demand. This pricing is generally used to end competitive threats. The company lowers the price with an aim of protecting market share from moving to the hands of the competitors. At times firms may reduce prices to sell off their outdated stock or to fill gap with their new line of products. Some vendors tend to set very low prices for new products while introducing them in the market with a view to inspire customers to try them out. However, this legal and ethical pricing strategy becomes illegal when a company uses unethical price cuts in order to squash the sales of its competitors by selling the same product at a lower price. Federal laws are made to protect the competitors from

Show More
Related

  • Laws for Fair, Balanced and Competitive Business Practice

    658 Words  | 2 Pages

    Apart from Antitrust laws, there are several other laws that promote fair business practices. The Robinson-Patman Act prohibits price discrimination. This act ...

    Read More

  • Analysis Of A Couple Of Squares

    864 Words  | 2 Pages

    A couple of Squares has a limited capacity for which to produce their products and smaller companies tend to have larger fixed costs than bigger companies. Therefore, A Couple of Squares must maximize profits in order to ensure that they will stay in business. A profit-oriented pricing objective is also useful because of A Couple of Squares’ increased sales goals. A Couple of Squares increased their sales goals due to recent financial troubles. Maximizing profits is the easiest way to meet these sales goals due to the fact that A Couple of Squares has limited production capacity. The last key consideration favors a profit-oriented pricing objective because A Couple of Squares offers a specialty product. A specialty product often has limited competition, therefore can be priced on customer value. Pricing at customer value will maximize profits as well as customer satisfaction. A Couple of Squares’ lack of production capacity, increased sales goals, and specialty product favor a profit-oriented pricing

    Read More

  • Doubtful Trust In Baseball

    1232 Words  | 3 Pages

    Anti-trust laws are laws which prohibit anti-competitive behavior and unfair business practices. Their purpose is to make sure that businesses and consumers cannot be abused by powerful firms that hold or wish to hold a monopoly in the market. They also take into account certain ethical standards, and therefore can be considered quite subjective. Many specific strategies are outlawed by anti-trust laws, including price fixing (agreement on prices of uniform goods or services), predatory pricing (setting a low price in order to knock off competitors), and vendor lock-in (virtually forcing a consumer to buy from a certain supplier).

    Read More

  • Consumer Protection and the Federal Government

    1226 Words  | 3 Pages

    Section 2 outlaws price discrimination when it isn’t justified on the basis of cost differences and when it reduces competition.

    Read More

  • Cabela's Pricing Strategy Case Study

    595 Words  | 2 Pages

    Setting prices too high would discourage purchasing and setting prices too low negatively affects revenue. While several pricing strategies exist, the use of a value-based pricing system, as implemented at Cabela’s, offers an optimal strategy that meet both customer expectations and company requirements.

    Read More

  • Coles Vs Woolworths Price War

    322 Words  | 1 Pages

    A price war is a period in which several firms competing within the same market will react to the other firms lowering of price by lowering their own price. Left unchecked, a price war can spiral into a string of ever-lower price cuts that evaporate profits margins. The price war between Coles and Woolworths has both its benefits and its negatives. On the surface, lower prices mean a better deal for customers. However, in some situations it can work the other way.

    Read More

  • Comcast Price Discrimination

    1965 Words  | 4 Pages

    Price discrimination can be defines as when a firm offers an “individual good at different prices to different consumers” The Library of Economics and Liberty elaborates on its pricing strategy, stating Comcast offers different pricing depending on what features the consumer desires. For instance, the cable company will charge a higher price to a person who uses several services as part of their cable package. Conversely, the firm charges a very low price to someone who would “otherwise not be interested” , providing basic services at a minimum price. It takes advantage of the regulation imposed on the cable industry by offering the required basic package at seemingly attractive prices. Using this pricing system allows for it to attract different consumers whose maximum price they are willing to pay differs. Recently, Comcast attempted a new billing strategy by introducing a data usage cap. It essentially expanded on the company’s existing price discrimination method by charging customers according to how much data they used each month. Comcast also utilizes penetration pricing, where it offers its product at low prices to attract new consumers, later raising the prices once the customer is subscribed for a certain amount of time. Generally it claims the original prices were promotional only, lasting only a small amount of

    Read More

  • Is Price Gouging Morally Wrong Essay

    506 Words  | 2 Pages

    Panta Anjila 12215143 Assignment 6-2 Opinion paper on “Is Price Gouging Morally Wrong “ Price gouging cannot be said morally wrong only by evaluating few situations .All of the vendors involved in the distribution of goods and services at the time of disaster do not intend to maximize their profit. Some of them sell goods in the time of crisis with good intention as well .Therefore ,

    Read More

  • Price Gouging Essay

    722 Words  | 2 Pages

    Price gouging is increasing the price of a product during crisis or disaster. The price is increased due to temporal increase in demand while supply remains constrained. In many jurisdictions, price gauging is widely considered as immoral and is illegal. However, from a market point of view, price gouging is a correct outcome of an efficient market.

    Read More

  • The Economics of Predatory Pricing

    1754 Words  | 4 Pages

    Predatory pricing “is alleged to occur when a firm sets a price for its product that is below some measure of cost and forfeits revenues in the short run to put competitors out of business” (Sheffet p.163-164). The reason firms take the short term loss is because they hope to drive out competitors and raise prices to monopolistic levels. By doing this, they covered their short term loss to make even greater profits in the long term than they would have by not using predatory tactics (Sheffert). Predatory pricing became illegal under Section 2 of the Sherman Act. It has remained one of the more difficult allegations for prosecutors to prove, due to the complexity of determining the company’s actual intent and whether or not it the strategy is competitive pricing. According to Areeda and Turner, there are three ways to determine if a firm is implementing predatory pricing. First, a price above marginal cost is presumed lawful; second, a price below marginal cost is considered unlawful, except when there is strong demand; and third, average variable cost is considered a good proxy for marginal cost. This is a reason predatory pricing is still important today. The courts must decide whether or not companies are engaging in competitive prices for the good of the consumers or are using predatory tactics for the good of their own company. The purpose of this paper is to focus on the current legislation regarding predatory pricing, determining when there is predation in an industry and the cause and effect relationship it has on an industry.

    Read More

  • Consumer Law Essay

    1121 Words  | 3 Pages

    Marketing is a system of business activates designed to plan, price, promote and distribute want-satisfying products, services and ideas to customers in order to achieve business objectives. Consumer law protects consumer’s rights in the marketplace as well as fair trading, competition and accurate information. On the other hand, ethical aspects of marketing are about making marketing decisions that are morally right. However, consumer law and ethical aspects of marketing have a lot of advantages and disadvantages in the marketplace, which impacts business 's sales and growth like it happened to: Harvey Norman, Nurofen, apple, etc.

    Read More

  • Product Pricing

    1498 Words  | 3 Pages

    Pricing is an important aspect of every business. Chief Financial Officer’s (CFO) use pricing to create financial projections, establish a break-even point, and calculate profit and loss margins (Power Point, 2005). It is the only element in the marketing mix that produces revenue. Price is also one of the most flexible elements of the marketing mix as it can be changed very quickly. This is usually done to beat competitor prices in an attempt to fix the product’s market value position very low (Anderson & Bailey, 1998). After all, high prices make it difficult to become the market share leader. The leading US retailer, Wal-Mart, is an expert at low product pricing as evident in 2004 with $250 billion dollars in sales to their 138 million weekly shoppers. However, they are also responsible for reducing prices so low that it drives specialty stores out of business. This is the effect Wal-mart has had on many toy stores and has almost closed the doors of the famous toy store Toys “R” Us Inc.

    Read More

  • Marketing Ethics: The Ethical Ethics Of Deceptive Advertising

    1084 Words  | 3 Pages

    In order to generate sales, marketers often promote aggressively and uniquely, unfortunately, not all marketing advertisements are done ethically. Companies around the globe spend billions of dollars to promote new products and services and advertising is one of the key tools to communicate with consumers. Conversely, some methods that marketers use to produce advertisements and to generate sales is deceptive and unethical. Ethical issues concern in marketing has always been noted in marketing practice. According to Prothero (2008), ethics itself has a profound, varied and rich past. It emphasizes on questions of right and wrong or good and bad.

    Read More

  • Advantages And Disadvantages Of Perfect Competition

    743 Words  | 2 Pages

    An oligopolistic market has a small number of sellers dominating market share and therefore barriers to entry are high. These sellers are highly competitive and do not act independently of each other. Access to information is limited so sellers can only speculate of their competitor’s actions. Sellers will take advantage of competitor’s price changes in order to increase market share.

    Read More

  • The Effects of Piracy on the Music Industry

    1131 Words  | 3 Pages

    ...n the companies will have to decrease the price otherwise the product will not be sold at higher prices and the revenue would not be as large as companies would like to.

    Read More

More about Price Gouging Case Study

Open Document