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Public Policy and Marketing

The study of social and legal issues that influence pricing decisions.

Social and Legal Issues in Pricing

Factors that limit pricing practices to promote fair competition and protect consumers.

Price Fixing

An agreement or conspiracy among firms to set or control product prices.

Horizontal Price Fixing

When two or more competing companies agree to set or control prices.

Vertical Price Fixing

Agreements between different levels of a distribution channel to control retail prices.

Resale Price Maintenance (RPM)

A practice in which a manufacturer attempts to control the prices charged by retailers.

Minimum Retail Price

A price requirement that retailers must not sell below a specified price; coercive enforcement may be illegal.

Maximum Retail Price

The highest retail price established by a manufacturer or wholesaler, provided it does not unreasonably restrict competition.

Per Se Rule

A rule under which a practice is considered illegal by its nature without requiring further justification.

Rule of Reason

A legal approach that examines the circumstances and effects of a practice to determine whether it unreasonably restricts competition.

Effects of Price Fixing

It reduces competition, keeps prices artificially high, limits consumer choices, and harms consumers.

Predatory Pricing

Charging very low prices with the intent of driving competitors out of business, then raising prices afterward.

Federal Trade Commission Act

created to police unfair competition and protect consumers from deceptive practices

sherman act

Outlaws unreasonable restraints of trade and monopolization

Below-Cost Pricing

Selling below cost, which is not automatically predatory unless the required conditions and intent are established.

Robinson-Patman Act

An amendment to the Clayton Act that prohibits price discrimination in goods of like grade and quality when it substantially lessens competition or creates a monopoly.

Price Discrimination

Charging different prices to different buyers for goods of like grade and quality.

Cost Justification Defense

A permitted price difference based on differences in manufacturing, selling, or delivery costs.

Changing Market Conditions Defense

A justification for price differences caused by changing market conditions, seasonal merchandise, perishables, or closing-out sales.

Meet-the-Competition Defense

A justification for matching competitors' prices in good faith without intending to injure competition.

Different Product Qualities

Price differences may be allowed for different qualities of the same product when the differences are proportional.

Competition Matching

Temporarily matching competitors' prices in a localized and defensive manner rather than to attack competitors.

Promotional Allowances

Promotional benefits that sellers must offer on a proportionally equal basis to eligible buyers distributing their products.

Manufacturer's Suggested Retail Price (MSRP)

A manufacturer's recommended selling price that is not automatically illegal; coercive enforcement can create legal issues.

Deceptive Pricing

A pricing practice that misleads consumers about a product's actual price, discount, or value.

Bait-and-Switch Pricing

The seller advertises a product at a very low price to attract customers, then persuades them to buy a more expensive product instead. under dp

Bargains Conditional on Other Repurchases

The seller advertises a special deal that requires the customer to buy another item or make an additional purchase. It becomes deceptive when the offer misrepresents the savings or uses inflated prices. under dp

Comparable-Value Comparisons

The seller compares a product's price or value with another product to make the offer appear cheaper, even though the comparison is misleading or the products are not genuinely comparable. under dp

Comparisons With Suggested Prices

The seller compares its selling price with a manufacturer's suggested retail price (MSRP) or another suggested price that may be inaccurate or misleading. under dp

Former-Price Comparisons

The seller compares the current selling price with its own previous price to make customers believe they are getting a discount when the former price is false or was not genuinely charged. under dp

False Reference Price

An artificially inflated regular price used to make a sale price appear more attractive than it really is.

Scanner Fraud and Price Confusion

Pricing problems involving checkout overcharges or confusion about the actual price, whether caused by errors or intentional misconduct.

Ethical Pricing

Setting and communicating prices honestly, ensuring customers understand the actual price and pricing terms.

Inflation

A continuous increase in the general price level of goods and services.

Deflation

A decrease in the general price level of goods and services.

Hyperinflation

Extremely rapid and uncontrollable increases in the general price level.

Demand-Pull Inflation

Inflation that occurs when demand for goods and services exceeds available supply.

Cost-Push Inflation

Inflation caused by rising production costs, such as higher oil prices or wages.

Structural Inflation

Inflation associated with weaknesses in the economic system, such as monopolies or poor policy implementation.

Fiscal Policy

The government's use of spending and taxation to maintain economic stability.

Expansionary Fiscal Policy

A policy used during slow economic growth that lowers taxes and increases government spending.

Contractionary Fiscal Policy

A policy used to control excessive inflation by increasing taxes and decreasing government spending.