Government Regulations Affecting Price Martin Williams EMKT 6110 Dr. Elaine Adams Attention grabber- this topic is more important than it sounds What if varsity advertise hotdogs $1.50 but charged you $6.50 because you were not baldheaded? Can they do this?

Objectives Define Price Gain an understanding of the factors that affect price Discuss the importance of government regulations on price Discuss and define 6 pricing issues that the government regulates Name important regulation and laws related to price Discuss enforcement Discuss the importance of competition in our economy

Review what we already know What is Price? The value of money (or its equivalent) placed on a good or service Dependent on the “Value” a customer places on the product The right price is: Whatever the customer is willing to pay! The value we place on things can change drastically. Go back to our discussion of varsity hotdogs. I imagine many of you would pay double for a hot chili dog right now. But think about the employee who has been cooking them all day. He probable gets a discount but he would not even buy one for half price. This is also related to the reasons we pay more for a coke brought to us in the stands than we would for than same coke at the grocery store. Convenience having the product when we want it as well as the overall quality affect price.

When the price is right, everyone is happy! Price is an important factor in the success or failure of any business. When the price is right, everyone is happy!

Price helps maintain: Image Competitive Edge Profit Wal-mart’s slogan of “Always the lowest price.” vs Saks 5th Avenue where if you have to ask the price then you can’t afford it. Shows the image that price creates for businesses Companies often gain a competitive edge through their pricing strategies. Even if they choose to compete in non-price competition like higher quality or better service they do so maintain the profit level they desire from the prices they charge.

Price affects consumer perceptions Higher price sometimes equals better quality and upscale store Lower price sometimes equals lower quality but usually means a bargain Whether the price is high and the consumer’s perception is that the product is better quality or the price is low and perception is a bargain the business must carefully plan their pricing strategy.

Other factors affecting price Cost and expense of producing and servicing product Competition in the market Supply and demand for the product and……. The price must be high enough to cover expenses. The price must be competitive with other businesses selling similar products. The overall supply and demand by consumers and producers has a big effect on price.

Government Polices and Laws In our mixed economy where we have some involvement by the government in business transactions this can greatly affect price. Generally to protect consumer from being taken advantage of.

Consider these Issues Price-Fixing Price discrimination Resale price maintenance Minimum Pricing Unit Pricing Price Advertising These 6 issues are ways the government affects price and helps keep the economy competitive.

Price Fixing When competitors agree on certain price ranges Must be evidence of collusion (Communication between competitors) Illegal because harms competition Competitors are not allowed to discuss price and agree to keep price at a certain level. Prices of competing companies are usually close due to economic forces like supply and demand and this is ok.

Always Remember Competition is the Cornerstone of : The Free Enterprise System Competition is what makes our economy so special. It is what gives consumer choices. Keeps businesses creative and adds quality service and selection at a fair price.

Price Discrimination When different prices are charged to similar customers in similar situations Unfair for small competitors as well as consumers Only legal when the price difference is a result of selling or transportation cost Charging a different price based on some obscure reason is illegal. Small business would not be able to compete if they were charged a higher price for their products. A cost break for buy quantity can be given if all companies purchasing the product are given the opportunity for the quantity discount.

Resale Price Maintenance When Manufacturers force Retailers to sell for a certain price Nine West Shoe Company recently fined Government says this is a restraint on trade and anti-competitive Nine West Shoe Company ( Many of you ladies should know this brand) was recently fined 34 million for making agreements with retailers to create a fixed price for their shoes and limit the time a retailer could run a sale. Easy Spirit’s Get Fit Sale in Jan. Use to be the only time you could put those shoes on sale.

When Retailers sell below cost to drive competitors out of business Minimum Pricing When Retailers sell below cost to drive competitors out of business Selling below cost for the purpose of driving competitors out of business is illegal. A bigger more financially stable company could come in drive the competitors out of business and then raise price back up and eventually have a monopoly. Obviously it is ok to sell items below cost at end of season clearance sales.

Unit Pricing Consumers must be given the opportunity to compare prices in relation to a standard unit or measure Food or packaged goods must be labeled properly Package laws require knowledge of contents and weight so consumer can compare prices.

Price Advertising Forbid advertising a price reduction unless original price was offered to the public Cannot say your prices are lower than competitors without proof Bait-and-Switch is illegal Advertising a sales price requires the business to stand by that price and to provide proof if they compare their prices to competitors. Bait and switch is when a business advertises a low price on some product and then when the customer comes in to purchase – either the product is supposedly sold out or the salesperson immediately begins to encourage the customer to buy another product that is better (especially better priced from the businesses stand point). Having a loss leader is legal. This is a practice of selling certain popular items at a bargain price hoping these items will pull customers into the store and while they are there purchase other things.

Important Regulations Affecting Price The Clayton Antitrust Act-covers price discrimination The Sherman Antitrust Act covers price fixing The Robinson-Patman Act covers both price discrimination and price fixing These antitrust laws promote competition and outlaw monopolies or anything that unreasonably restrains trade. The Sherman Antitrust Act covers price fixing. The Clayton Act covers prices discrimination and the Robinson-Patman Act cover both.

Government Regulates Unfair Trade Practices The Federal Trade Commission The Justice Department Local Communities / Better Business Bureau The Fed Trade Comm. Prohibits unfair and deceptive competition and false advertising. The Justice Department enforce laws and hands down judgements. Most communities have independent Better Business Bureaus that inform consumers on ways to deal with unfair or illeagl treatment from businesses. Getting contacted by the BBB for unethical business practices usually makes businesses police themselves. The bad publicity generated could ruin their business.

The Federal Trade Commission Works to ensure markets are efficient and free of restrictions that harm consumers

Competition among Businesses Creates the lowest prices Causes innovation and creativity in product selection and product quality Strengthens the economy The importance of competition on our economy can never be forgotten. Lower prices, creativity and innovations, product improvements, better service are all results of competition.

Markets work best when… Consumers make informed choices Based on accurate information Informed consumers are a powerful tool that keeps businesses looking for the best quality and providing the best service at the lowest price. These informed consumers tell others and keep coming back to the businesses that satisfy them.

Review Price is the value of money placed on a good Several factors affect price : cost / competition / supply and demand / government policy Various antitrust laws promote competition and outlaw unreasonable restraints on trade Federal Trade Commission and Better Business Bureau enforce and inform regulations of businesses Competition makes economy strong and works to the consumers advantage Price is the value of money placed on a good Several factors affect price : cost / competition / supply and demand / government policy Various antitrust laws promote competition and outlaw unreasonable restraints on trade Federal Trade Commission and Better Business Bureau enforce and inform regulations of businesses Competition makes economy strong and works to the consumers advantage