Governmental Influence on Pricing (20.2)

Sep 15, 2024

Lecture Notes: Governmental Influence on Pricing

Introduction

  • Importance of understanding pricing practices in business.
  • Historical context of the Sherman Antitrust Act of 1890.
  • Focus of lecture: Unfair pricing practices and governmental controls.

Key Topics

  1. Definition of Unfair Pricing Practices

    • Practices meant to deceive customers.
    • Illegal or unethical, reported to authorities.
    • Consequences range from losing customers to business closure.

  2. Seven Types of Unfair Pricing Practices

    • Bait and Switch
      • Advertising a product to lure customers, then upselling.
      • Example: Advertised broom for $6, sell vacuum for $60.
    • Price Fixing
      • Competitors set high prices above market equilibrium.
      • Example: Basketball shoes priced at $500 everywhere.
    • Price Discrimination
      • Selling the same product at different prices based on characteristics.
      • Example: Higher prices for people with brown curly hair.
    • Deceptive Pricing
      • Pricing to mislead customers.
      • Examples include hidden fees, pressuring to buy.
    • Predatory Pricing
      • Temporarily low prices to eliminate competition.
      • Example: Overseas companies with super cheap products.
    • Loss Leader
      • Pricing items below market cost to draw customers.
      • Different from predatory pricing, goal is to sell other products.
    • Price Gouging
      • Raising prices during emergencies.
      • Example: High toilet paper prices during COVID-19.

  3. Governmental Responses to Unfair Pricing

    • Pricing Laws
      • Laws to prevent unfair practices and monopolies.
      • Importance of knowing specific pricing laws.
    • Governmental Price Controls
      • Intervention to regulate economic stability.
      • Price Ceilings: Maximum prices to prevent inflation.
        • Can lead to shortages.
      • Price Floors: Minimum prices to support producers.
        • Can lead to surpluses (unsold goods).

Conclusion

  • Recap of unfair pricing practices and government intervention.
  • Importance of understanding to be aware of the market and consumer rights.

Study Tips

  • Review examples of each pricing practice for clarity.
  • Understand differences between price control mechanisms.
  • Consider real-world scenarios of price fixing and gouging.

Sources

  • Provided at the end of the lecture for further reading.