Price Gouging Case Study

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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 At times firms may reduce prices to sell off their outdated stock or to fill gap with their new line of products.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

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