Question

It's Marketing subject

Name and describe two forms of pricing that is prohibited by US laws.?

Answer 1

The below forms of pricing practices are prohibited by the Antitrust laws (Competition laws) by the US government.

• Price Fixing: Price fixing is when the price of a product or a service is set at a fixed price by several businesses, sellers or parties to ensure profitability. The price of the product is fixed as high as possible so that the consumer ends up paying more than the consumer would pay otherwise, that is when the price is determined fairly and naturally with market forces. It is like a conspiracy between buyers or sellers for a mutual benefit. This is done to maintain margin and also to avoid price wars.

• Predatory Pricing: This is a pricing strategy in which a very low price is set for a product or service. This is done in order to gain new customers or to create barriers for new entrants (potential competitors). This strategy is also used in defence to drive current competitors out of the market. This type of pricing forces other firms or competitors to leave the market. This strategy is also known as undercutting strategies. This is considered illegal as it does not promote healthy competition and in fact, eliminates competition thus making the market monopolistic.