Pricing strategy developments
Pricing Strategy refers to an agreement by a certain number of companies to set the price of a commodity, and they mainly do this to increase profits. This mainly happens with monopolies as they do not have competitors to get into price wars with. This conduct restricts competition, and it creates an unfair market environment by forcing prices up and reducing the choice for consumers and businesses.
Types of Price Fixation
Price fixation can happen in some ways. Businesses can price their products highly where consumers have no choice but to buy at that high price; they can also offer discounts at the same rate which leads to similar pricing. Price fixing may also occur in the credit market where companies agree to standardize credit terms. Companies may also agree to sell products below market value to kick out a competitor. The main types of price fixation are described below
Agreement to raise prices. This is when competitors agree to raise prices by a certain amount. This occurs mostly during inflation as the rise in cost of living increases the cost of doing business
Freeze or lower prices. Governments freeze prices of essential goods and services by setting price freezes. It is not effective, and it is used when monetary policy is inefficient. It is mainly done when inflation rises and the government needs to restore the confidence of the people.
Horizontal Price Fixing. This occurs mainly between competitors of a similar product. It mainly happens with oil although it is governments that fix prices and not companies or commercial entities.
Vertical price fixing occurs mainly across companies in a supply chain. A manufacturer and his dealers may fix prices on products by suggesting the recommended retail price to outlets selling the product if the manufacturer has a lot of sales. Although this is illegal, manufacturers go around this by setting their outlets which give them direct power to set the prices.
Price fixing disrupts the laws of demand and supply which are the main determinants of prices in an economy. Price fixing gives monopolies an edge over competitors, and they do not always have consumer’s interests at heart. They may, therefore, set high prices on consumers while refusing to innovate as well as raising barriers to entry. This has a counteractive effect of reducing the variety of commodities for customers to choose from and also stalling innovation which leads to reduced quality of goods and services in the market. The consumers do not, therefore, enjoy the advantages of a free-market.
Price fixation also violates federal and competition laws. If businesses are found out to have colluded to set the price of a product, then they might be charged for business collusion. Business collusion is an agreement between companies that illegally prevents business from competing together. Price fixing normally violates competitive law since it controls the market price. This prohibits businesses from competing against each other in the process fixing agreement that prevents the public from expecting the benefits of free competition.
At JNJ Experts, we work with our skilled team of professional attorneys to ensure that business provide a fair competitive environment that is condusive for all business that seek to grow in any market.