THE PROBLEM

OF
FAIR PRICING
INTRODUCTION
• Our everyday life requires the exchange of goods and services between 2 or
more parties.
• These everyday exchanges are given the conditions of a barometer we usually
call the price.
• The concept of price comes in many forms depending on the notion on how it
is used. But the more familiar question on the concept of price is implementing
a fair price.
• In business, the price a business corporation charges its customers for a
product or service is the total cost of investment plus target profit.
• On the other hand, the consumer thinks of it as the amount of money charged
for a product or service.
What is price?
• Price is a measure of value in exchange (Strictly speaking, nothing
really has a price until it is offered in exchange).
• It may be expressed in monetary terms (a sale) or in non-monetary
terms, barter.
• On the other side of the buyer, price is an equivalent given or asked in
exchange of value or cost.
• On the side of the seller, it is the amount that the business charges its
customers for a product or service which is part of the firm’s total cost
of investment in view of the firm’s target profit.
 NATURAL PRICE
According to economist Adam Smith,
natural price is the price that just covers
the costs of producing commodity,
including the going rate of profit
obtainable in other markets.
Price theories

Cost Market
theory theory
THE COST THEORY OF PRICES
• According to this theory, value in exchange, is a function of the cost of
the efficient production or acquisition of the object of the exchange
and the required return (profit).

• In other words, the fair price of a good/service will ultimately depend

on how much it costs for the seller to make the product available to the
buyer and on the calculation of a reasonable profit for the seller.
MARKET THEORY OF PRICES
• According to the market theory, value is a function of utility and scarcity.

• This is to say, the fair price of something may vary considerably with the
general context in which the thing is offered for sale.

• One critique of the market theory of pricing is that it makes prices dependent
upon a variety of factors that neither the seller nor buyer can readily control.

• Foundation of fairness.
What is Fair?
• The word fair has two separate meanings—acceptable and
just.
• ACCEPTABLE implies that a fair price is satisfactory.
• A JUST PRICE, on the other hand is a judgment that the
price has been justified.
• The difference between an acceptable fair price and just fair
price is the difference between what is called personal and
social fairness.
What makes
a Price Fair?
IT SHOULD BE:

Acceptable

Just
 A price is fair when these 3 conditions are met:
1) The buyer and the seller must negotiate the terms of the exchange voluntarily.
If either buyer or seller has no choice to make about some relevant term of the
exchange, we cannot be sure the price is fair.
2) Both buyer and seller must agree to the exchange without unusual constraints.
If either the buyer or seller is under unusual pressure to buy or sell, we cannot
be sure the price is fair.
3) Both buyer and seller must have adequate information about the things to be
exchanged. This means, for example, that buyers must receive from sellers, or
be able to get adequate information about the thing they propose to buy. They
do not have a right to know everything, but sellers who deceive or mislead
buyers about relevant details, or who conceal important information, violate
their customers’ rights. Prices obtained under such circumstances may very
well not be fair. This has far-reaching implications for advertising efforts.
Determining a fair price
First is that man is entitled to enjoy the fruits of his labor and as an
effect sets a price he deems reasonable for his produce.

Second is that price depends on the law of supply and demand and fair
is that one obtained by a fair competition.
In general, a fair price is one that man has not yet resolved,
though some factors are considered such as:

• The cost of materials

• Operating and marketing expenses
• Reasonable profit margin.