264 Chapter 10 Product, Price, and Place Copyright Goodheart-Willcox Co., Inc. 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. Product Life Cycle The stage of a product in its life cycle influences pricing. In the introduction stage of many products, the prices are often higher. Higher prices may reflect the lack of competition and could help the business recover some development costs. When competitors enter the market during the growth stage, however, they may set lower prices to attract new customers. Products 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 Goodheart-Willcox Publisher