Basic Marketing: A Global Managerial Approach

Perreault−McCarthy: Basic
Marketing: A
Global−Managerial
Approach, 14/e

17. Pricing Objectives and
    Policies

Text © The McGraw−Hill

Companies, 2002

Pricing Objectives and Policies 509

with competitors (conspire). And price fixing—competitors getting together to raise,

lower, or stabilize prices—is common and relatively easy. But it is also completely ille-

gal in the United States.It is considered “conspiracy” under the Sherman Act and the

Federal Trade Commission Act. To discourage price fixing, both companies and indi-

vidual managers are held responsible. Some executives have already gone to jail!

Price-fixing laws in the United States focus on protecting customers who pur-

chase directly from a supplier. For example, a wholesaler could bring action against

a producer-supplier for fixing prices. However, retailers or consumers who bought

the producer’s products from the wholesaler could not bring action. In contrast,

many state laws allow “indirect customers” in the channel to sue the price fixer. A

1989 Supreme Court ruling cleared the way for more states to pass this type of law.

The expected result will be even tougher penalties for price fixing.^27

Different countries have different rules concerning price fixing, and this has cre-

ated problems in international trade. Japan, for example, allows price fixing under

certain conditions—especially if it strengthens the position of Japanese producers

in world markets.

Price level and price flexibility policies can lead to price discrimination. The

Robinson-Patman Act(of 1936) makes illegal any price discrimination—selling

the same products to different buyers at different prices—if it injures competition.

The law does permit some price differences—but they must be based on (1) cost

differences or (2) the need to meet competition. Both buyers and sellers are con-

sidered guilty if they know they’re entering into discriminatory agreements. This

is a serious matter—price discrimination suits are common.

The Robinson-Patman Act allows a marketing manager to charge different prices

for similar products if they are notof “like grade and quality.” The FTC says that if

the physical characteristics of a product are similar, then they are of like grade and

quality. A landmark U.S. Supreme Court ruling against the Borden Company

upheld the FTC’s view that a well-known label alonedoes not make a product dif-

ferent from one with an unknown label. The company agreed that the canned milk

it sold at different prices under different labels was basically the same.

But the FTC’s victory in the Borden case was not complete. The U.S. Court of

Appeals found no evidence of injury to competition and further noted that there

could be no injury unless Borden’s price differential exceeded the “recognized con-

sumer appeal of the Borden label.” How to measure “consumer appeal” was not

spelled out and may lead to additional suits. For now, however, producers who want

to sell several brands—or dealer brands at lower prices than their main brand—

probably should offer physical differences, and differences that are really useful.^28

The Robinson-Patman Act allows price differences if there are cost differences—say,

for larger quantity shipments or because middlemen take over some of the physical dis-

tribution functions. But justifying cost differences is a difficult job. And the justification

must be developed beforedifferent prices are set. The seller can’t wait until a competi-

tor, disgruntled customer, or the FTC brings a charge. At that point, it’s too late.^29

Under the Robinson-Patman Act, meeting a competitor’s price is permitted as a

defense in price discrimination cases. A major objective of antimonopoly laws is to

protect competition, not competitors. And “meeting competition in good faith” still

seems to be legal.

Some firms violate the Robinson-Patman Act by providing push money, adver-

tising allowances, and other promotion aids to some customers and not others. The

act prohibits such special allowances—unless they are made available to all customers

on “proportionately equal” terms.

U.S. antimonopoly laws

ban price discrimination

unless...

What does “like grade

and quality” mean?

Can cost analysis

justify price

differences?

Can you legally meet

price cuts?

Special promotion

allowances might not

be allowed