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Section 10.2 Price
Governmental Regulations
There are many state and federal laws that regulate pricing to
prevent monopolies and to promote fair competition. As discussed
earlier, both businesses and consumers are affected by unfair pricing
practices. Some unfair pricing practices include:
• bait and switch; it is illegal to advertise one product with the intent
of persuading a customer to buy a more expensive item;
• price-fixing; it is illegal for a group of businesses to agree to keep
their prices in the same range;
• price ceilings; laws may prohibit setting prices too high;
• price floors; laws may prohibit setting prices too low;
• price discrimination; it is illegal to sell the same product to different
customers at different prices based on personal characteristics;
• deceptive pricing; pricing products in a way to intentionally mislead
a customer is illegal; and
• predatory pricing; it is illegal to set very low prices to remove
competition, such as foreign companies that price their products
below the same domestic ones to drive the domestic companies
out of business.
Figure 10-2. Fixed
expenses do not change,
while variable expenses
change often.
Types of Expenses
Fixed Expenses Variable Expenses
Equipment rental
Insurance
Interest
Licenses
Loan payments
Mortgage
Rent
Salaries
Service payments (cell phone,
Internet, subscription TV)
Advertising and promotion
Bonuses
Credit card payment
Hourly wages
Office supplies
Packaging
Sales commissions
Shipping and handling
Utilities
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