Legal, ethical and Social Issues

Related to Pricing
 1. Pricing practices involves price-setting process that limits price
competition

Price Fixing – Interferes with the independence of the price-setting process

- Collusive or arbitrary agreements on prices

Price Fixing

Horizontal Price Fixing Vertical Price Fixing

Agreements among competing sellers on
Common minimum price, same Resale price maintenance
mandatory surcharges, establish uniform Explicit bilateral contracts
costs and markups, restrict product
supply
 2. Inappropriate price levels concerns the prices that end up actually
occurring
Excessively High Prices
• Price Controls (legally mandated maximum
prices)
• Enactment of laws against price gouging
(price gouging means opportunistic activity
aimed at profiteering or unfair and
exorbitant pricing)
Excessively Low Prices
• Lead to consumption of product that is
considered undesirable (unwholesome
demand)
• e.g., guns,
• Full costs of producing and/or disposing of
products are borne by general public
• Predatory pricing
3. Inappropriate price differentials concerns the differences in price
levels between different buyers

Price Segmentation

When a price segmentation practice is seen by consumers as unfair

If repeated often, impressions of unfairness could contribute to a demoralizing cynicism
Practice of giving favorable prices to only some customers may be subject
• Cost-justification
• Meeting competition
 4. Inadequate price communication

• Manipulation of price formats

• Inflated external reference prices
• Using low prices as baits (employing hedging words)
Microsoft Corp.’s Pricing Policies
 Suggested case preparation questions

• Brief of case
• Does Microsoft unfairly monopolize the software business?
• Analyze the three types of marketing practices (like why Microsoft engages in these practices or
how these practices may also blunt competition)
• Exclusionary licenses
• Minimum commitments and long licenses
• Restrictive non-disclosure agreements
• Construct a defense for Microsoft.
Sherman Act (1890)

• SEC 1: No “restraint of trade”

• SEC 2: No monopolies or attempts to monopolize

• Monopoly must exist
• Monopoly power must have been acquired unfairly
CLAYTON ACT (1914)

• No practices that lessen competition or tend to create monopoly

• No price discrimination (i.e., no price differences unless cost justified
or necessary to meet the competition)
• No tying or exclusive dealing contracts
• No anti-competitive mergers
• No unfair methods of competition or unfair and deceptive acts and
practices