Is it illegal to undercut prices?

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.

What pricing strategy is illegal?

Predatory pricing is the illegal business practice of setting prices for a product unrealistically low in order to eliminate the competition. Predatory pricing violates antitrust laws, as its goal is to create a monopoly. However, the practice can be difficult to prosecute.

Is price collusion illegal?

When competitors collude, prices are inflated and the customer is cheated. Price fixing, bid rigging, and other forms of collusion are illegal and are subject to criminal prosecution by the Antitrust Division of the United States Department of Justice.

Is captive pricing illegal?

The method is illegal in the United States under antitrust laws, and proving that a company is practicing it can be tricky. In some instances, dropping prices below cost might be indicative of particularly intense competition between firms — not a predatory attempt to run one another out of a market.

What is price undercutting?

If you undercut someone or undercut their prices, you sell a product more cheaply than they do. [business] Subsidies allow growers to undercut competitors and depress world prices.

How To Undercut Your Competitors Price (And Still Make Money)

Can occur when a company purposefully makes pricing decisions to undercut?

Predatory pricing is a pricing strategy, using the method of undercutting on a larger scale, where a dominant firm in an industry will deliberately reduce the prices of a product or service to loss-making levels in the short-term.

What is price underselling?

Undersell is when a retailer offers an item for a lower price than competitors. In some cases, a merchant may even price items below their acquisition cost to edge out a competitor or build loyalty to their store. When a store decides to undersell an item, they may simply price it at a lower amount.

Why is it illegal to sell below cost?

According to the Business and Professions Code, it is prohibited to sell a product below its cost for the purpose of destroying competition or injuring competitors.

What is an example of illegal unethical pricing?

Another common unethical pricing strategy is price discrimination. Price discrimination is when a retailer sells the exact same product or service at different prices to different people. Instead of the same price across all markets, retailers adjust prices based on what they think the consumer will pay.

Can you sue for 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 price.

What is illegal predatory pricing?

In most general terms predatory pricing is defined in economic terms as a price reduction that is profitable only because of the added market power the predator gains from eliminating, disciplining or otherwise inhibiting the competitive conduct of a rival or potential rival.

What is an example of illegal collusion?

An example of illegal collusion is a secret agreement between firms to fix prices. Such agreements may be reached in a completely informal fashion. Indeed, enforcing competitive practices may not even require evidence that the firms have had any sort of contact at all.

What is illegal price discrimination?

Price discrimination refers to charging different customers different prices for the same good or service. The Sherman Antitrust Act, Clayton Antitrust Act, and Robinson-Patman Act outlaw price discrimination when the intent of that discrimination is to harm competitors.

What is predatory pricing examples?

A prime example of predatory pricing tactics between two large franchises can be seen in the prescription drug price war between Walmart and Target in Minnesota. Walmart, seeking to undercut the competition, initially began offering certain prescription drugs at well below their price floor.

What is predatory pricing dumping?

Predatory dumping refers to foreign companies anti-competitively pricing their products below market value to drive out domestic competition. Those who practice predatory dumping are forced to sell at a loss until the competition is wiped out and monopoly status is achieved.

What is bait pricing?

advertising an item at an unrealistically low price as 'bait' to lure customers to a store or selling place.

Can I charge different prices for the same product?

A seller charging competing buyers different prices for the same "commodity" or discriminating in the provision of "allowances" — compensation for advertising and other services — may be violating the Robinson-Patman Act.

What is illegal pricing issues?

Illegal price fixing occurs whenever two or more competitors agree to take actions to raise, lower, maintain, or stabilize the price of any product or service. Price-fixing schemes are often worked out in secret and can be hard to uncover, but an agreement can be discovered from "circumstantial" evidence.

What are 5 ethical pricing issues?

What is destroyer pricing strategy?

Destroyer pricing

It involves a business setting a very low price in order to attract customers away from competitors, who will struggle to match the low price and may go bust. Usually only large businesses can use this strategy as they can withstand the losses for a longer period than small businesses can.

Can you lower cost of goods sold?

Consider Manufacturing on Demand or Dropshipping

One of the biggest contributing factors to COGS is inventory purchases made throughout the year. The more products you buy, the more costs rise. Rather than stock products that may not sell, brands could reduce their COGS by using a manufactured on-demand strategy.

What is skimming pricing strategy?

Skim pricing, also known as price skimming, is a pricing strategy that sets new product prices high and subsequently lowers them as competitors enter the market. Skim pricing is the opposite of penetration pricing, which prices newly launched products low to build a big customer base at the outset.

What happens if you price too low?

Setting prices too low can convey the message to consumers that your product isn't as good as other similar products on the market. While low prices may not earn you greater profits, the more of a product you sell the more profit you make.

What happens if you set the selling price too low?

If you set your prices too low, you won't make any profit whereas if you set them too high, you'll drive customers away. Besides not generating as much revenue, setting your prices too low also has the negative effect of attracting more difficult customers.

What happens if you price too high?

If you decide to overprice your products, you are highly likely going to see a decrease in sales and revenue. Irrationally high product prices tend to drive consumers away and make them choose your competitors over you.