THE PROBLEM OF FAIR PRICING

Definitions of PRICE

in business, it is the total cost of investment plus target profit

for consumers, it is the amount of money charged for a product or service

Theories on why a price has to be established

1.

Man is entitled to enjoy the fruits of his labor and as an effect sets a price he
deems reasonable for his produce.
2.
Price depends on the law of supply and demand and fair is that one obtained by a
fair competition.
FACTORS CONSIDERED IN DETERMINING FAIR PRICE

The cost of materials

Operating and marketing expenses
A reasonable profit margin
ETHICAL ISSUES IN FAIR PRICE

1. True cost of the product is concealed

Some companies normally do not show the real cost of the product with a closed
book policy or under the clout of confidentiality hence the price may not be fair for the
consumers.
2. Suggested retail price
The impact on the consumers of a suggested retail price is one that is open to a lot
of interpretations making price determination subject to doubt and suspicion.
3. Use of electronic scanners
The use of electronic scanners in grocery or department stores is not a full proof
method for pricing fairly. It is subject to manipulation and system failure.

4. Promotional pricing.
Promo prices such as SALE items manipulate consumers in buying products
that are thought to be cheaper. Odd Price Policy on the other hand, deals with both price

and advertising ethics that uses odd numbers such as 49.99 instead of 50.00. Odd price
has a psychological impact on consumers making them believe that they are paying a
lesser price.
5. Follow the leader pricing
Follow the leader pricing is done to purposely make the buyers believe that what
is being sold is the same as the well-known brands. This technique takes the impression
that products that are priced higher have better quality, while in fact they can be sold for
less.
6. Price Gouging
Price gouging takes advantage of an economic situation. An example is pricing
canned goods higher during storms and natural calamities.
7. Price fixing
Price fixing uses the power of the retailer among the producers correspondingly
controlling product price.
MARKET STRUCTURES
The market presupposes the setting of a fair price depending on its structure. Historically,
buyers and sellers bargain with each other in setting prices. Sellers would normally ask for a
higher price and buyers offer less than they expect. Through bargaining, each would arrive at a
fair market value reasonable to both parties. However, it is widely acknowledged that two types
of market structure show a different scenario in price setting.
TYPES OF MARKET STRUCTURE
1. PERFECT COMPETITION STRUCTURE
In this market structure, the supply side must have a large number of sellers
competing among themselves, without conspiracy in providing consumers with a product
or service. There must be no external legal, financial, or cost barriers to enter or exit the
market; an important consideration because the fewer the competitors, the easier it is for
competing sellers to engage in collusion or price-fixing. In the demand side, perfect
competition occurs when buyers compete, without collusion, in full knowledge of the
products or services offered. Consequently, in a perfect competition market, the price a
seller sets is balanced on the willingness of the buyer to pay.
2. IMPERFECT COMPETITION STRUCTURE
On the supply side, this structure occurs when a single seller, a monopoly, or a
group of sellers, an oligopoly, operates in an agreement, are capable of controlling both
supply and price of a product or service that has no substitute. Imperfect competition on

the demand side occurs when a single or a group of purchasers in collusion, are able to
influence the price it pays for the product or service.
JUST OR UNJUST PRICE
St. Thomas Aquinas set a principle on what is considered a just price. It states that
buying and selling were instituted for the common good of both parties since each needs the
products of the other. Therefore, the contract between them should rest upon an equality of things
to things. The measure of the value of a thing, which is exchanged, should be given by its money
price. Hence, to sell a thing clearer or to buy a thing cheaper than it is worth is unjust.
When Can We Suspect that Prices Are Unfair?

When profits are excessive (with respect to costs of capital).

When the object is priced according to an estimate of the cost to repair the damage
suffered by failing to receive the benefit.
When an increase in price occurs to take advantage of anothers distress.
When an increase in price is due to a false differentiation of the product.

CONCLUSION
The price of a product or service plays a large part in how well it sells. Producers and
retailers practice ethical pricing strategies to earn profits without defrauding competitors or
consumers. Despite that, competitor's prices, convenience, availability and other factors affect
consumer impressions of fair pricing. Business laws protect competitors and consumers from
many unethical pricing strategies that unscrupulous marketers may wish to attempt.
One of the fundamental rights of customers is the right to a fair price. Price is a measure
of value in exchange (strictly speaking, nothing really has a price until it is offered in exchange).
Price may be expressed in monetary terms (a sale) or in non-monetary terms (barter). Producers
sell products at wholesale costs that pay for the labor, materials and overhead to make the
products with a reasonable margin of profit. Retailers commonly mark up the price to two or
three times the wholesale cost to pay for employees and overhead with a considerable profit
margin for the company and its shareholders. At times retailers cut prices to stimulate sales of
particular products or to sell large quantities of popular products.
When all is said and done, the second theory or the market theory of prices must be the
foundation for judgments of fairness. Both theories can result in hardships to buyers or sellers,
but this is more a reflection of the uncertainties and rough edges of real life than it is an ethical
issue. (Though, to be sure, it is always possible for buyers or sellers to deceive, manipulate, or
defraud one anotherand these are serious ethical issues.) A price is fair, then, when its value is
determined in an exchange in which three conditions are met. First, the buyer and seller must

negotiate the terms of the exchange voluntarily. If either buyer or seller has no choice to make
about some relevant term of the exchange, we cannot be sure the price is fair. Second, both buyer
and seller must agree to the exchange without unusual constraints. If either buyer or seller is
under unusual pressure to buy or sell, we cannot be sure the price is fair. Third, both buyer and
seller must have adequate information about the things to be exchanged. This means, for
example, that buyers must receive from sellers, or be able to get, adequate information about the
thing they propose to buy. They do not have a right to know everything, perhaps, but sellers who
deceive or mislead buyers about relevant details, or who conceal important information, violate
their customers rights. Prices obtained under such circumstances may very well not be fair. This
has far-reaching implications for advertising efforts.

Bibliography:
Business Ethics and Social Responsibility, Fr. Floriano C. Roa
http://bizcovering.com/business-and-society/price-fixing/
www.yahoo.com
http://smallbusiness.chron.com/ethical-pricing-strategy-2726.html
www.google.com
http://www.stthomas.edu/cathstudies/cst/curriculum/Syllabi/fairprice.pdf
www.yehey.com

http://smallbusiness.chron.com/ethical-issues-pricing-strategy-17441.html
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