Numerous factors influence pricing. These factors include production costs, market conditions and competitive strategies. If a company’s pricing is so low that it’s selling at a loss, it enters predatory pricing territory. They may be seen as a company intending to eliminate competition through illegal business practices.
Businesses need to avoid this practice. Doing so can help them avoid breaches of certain laws of business, such as antitrust laws.
What are antitrust laws?
Antitrust laws protect fair competition and prevent practices that disrupt free trade. They condemn activities restricting trade or creating monopolies. Some pricing strategies could risk violating these laws, such as:
- False reference pricing: This is when a business sets a high “original” price, making the sale price look like a good deal.
- Bait and switch tactics: Some businesses advertise a low-priced product to attract customers, then try to sell a pricier item instead.
- Drip pricing: This is when businesses only reveal extra costs at the very end of a purchase.
Companies using these deceptive practices could face legal repercussions.
Pricing goods correctly
A careful pricing strategy is crucial to comply with antitrust laws. A well-thought-out pricing plan helps all small or medium-sized companies avoid violations. Here are some guidelines that can help companies develop a fair and effective pricing strategy:
- Price above cost: Businesses should ensure their prices cover their production costs. Short-term strategies like promotional pricing or loss leaders shouldn’t evolve into predatory practices.
- Compete on value: Businesses shouldn’t focus solely on price. They should emphasize the quality of their products. This could include highlighting unique features that could appeal to their target market.
- Transparent pricing strategy: Businesses need to maintain clear pricing. Unexplained, large price drops can attract unwanted attention. This is especially true if they’re significantly below production costs.
While predatory pricing may seem appealing for market dominance, it carries possible illegalities. Businesses must ensure that their competitive practices contribute to a healthy market environment. This minimizes the risk of unfair business practices and helps companies avoid breaching antitrust laws through predatory or deceptive pricing. Fortunately, a skilled business law attorney can provide guidance to ensure you maintain compliance or representation if legal action becomes a reality.