Pricing below your own costs is also not a violation of the law unless it is part of a strategy to eliminate competitors, and when that strategy has a dangerous probability of creating a monopoly for the discounting firm so that it can raise prices far into the future and recoup its losses.
Are price wars illegal?
Predatory pricing is the illegal act of setting prices low in an attempt to eliminate the competition. Predatory pricing violates antitrust law, as it makes markets more vulnerable to a monopoly.
Is it illegal to sell things below cost?
California’s below-cost statute makes it illegal to sell any article or product at less than cost , or to give away any article or product, for the purpose of injuring competitors or destroying competition. After losing sales because of The Grocer’s pricing, the competitor down the street sued The Grocer.
What is selling below cost called?
Predatory pricing under the Act means the sale of goods or provision of services, at a price below cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.
Why would a company sell a product below cost?
Selling below cost is a practice whereby a firm sells products at less than costs of manufacture or purchase in order to drive out competitors and/or to increase market share . This practice may arise partly because of deep pockets or cross-subsidization using profits derived from sale of other products.
What is collusive pricing?
Collusion occurs when entities or individuals work together to influence a market or pricing for their own advantage . Acts of collusion include price fixing, synchronized advertising, and sharing insider information. Antitrust and whistleblower laws help to deter collusion.
What is an example of price fixing?
This involves an agreement by competitors to set a minimum or maximum price for their products. For example, electronics retail companies may collectively fix the price of televisions by setting a price premium or discount.
What is price-fixing called?
Price fixing is permitted in some markets but not others; where allowed, it is often known as resale price maintenance or retail price maintenance . It is worth noting that not all similar prices or price changes at the same time are price fixing. These situations are often normal market phenomena.
Why is price-fixing bad?
Economists generally agree that horizontal price-fixing agreements are bad for consumers . ... Price-fixing agreements, since they reduce competitors’ ability to respond freely and swiftly to one another’s prices, diminish consumer surplus by interfering with the competitive marketplace’s ability to keep prices low.
What can I do about price gouging?
You should report any potential price gouging to your state Attorney General . You will generally need: 1) The name of the store/vendor where you saw the item and their address. 3) The date, time, and location you saw the product.
When should I sell my product below the price?
The only time you should consider selling below avoidable variable cost is when there will be significant ancillary sales to provide profit . For old models and obsolete items that will not be reordered or replaced, the money you spent to buy them is sunk and should not impact your decision.
Who uses predatory pricing?
Predatory pricing occurs when a firm sells a good or service at a price below cost (or very cheaply) with the intention of forcing rival firms out of business. Predatory pricing could be a method to deal with new firms who enter an industry.
How do you prove predatory pricing?
To prevail on a predatory-pricing claim, plaintiff must prove that (1) the prices were below an appropriate measure of defendant’s costs in the short term , and (2) defendant had a dangerous probability of recouping its investment in below-cost prices.
What pricing strategies are illegal?
- Component Pricing .
- Wrong Price .
- Multiple Pricing .
- Supermarket Code of Conduct.
- Misleading Pricing .
- Drip Pricing .
- Comparison Pricing .
- Bait Pricing .
Is it legal to sell products at a loss?
Legal Issues
Loss leader pricing has been banned in some U.S. states including Oklahoma, California, and Colorado. However, in some states, it’s only partially banned, and in Oregon, Texas, and New Mexico, it’s legal. Australia and Europe have also banned the practice.
Is price fixing legal?
Accordingly, price fixing is a major concern of government antitrust enforcement. A plain agreement among competitors to fix prices is almost always illegal , whether prices are fixed at a minimum, maximum, or within some range.
