Competitors
Because companies want to establish and maintain loyal customers, they will often match their competitors' prices. Some give discounts if lower prices are found elsewhere. The availability of close substitutes also affects a company's pricing decisions.
The Economy and Government Laws and Regulations
- During weak economies, companies generally lower their prices.
- Pricing decisions are also affected by federal and state regulations.
- Robinson-Patman Act limits a seller's ability to charge different customers different prices for the same product. The intent of the act is to protect small businesses from larger business that try to extract special discounts and deals for themselves in order to eliminate their competition.
- Cost differences, market conditions, and competitive pricing by other suppliers can justify price differences in some situations. Price discrimination such as offering senior citizens discounts at restaurants or charging children discounted prices at the movies is legal.
- Price fixing is a form of collusion whereby two or more companies in an industry get together and agree to set their prices at a certain level. Price fixing is not uncommon. Companies caught price fixing include Nintendo, Sharp, LG, Virgin Atlantic Airways, American Airlines, and British Airways.
- Unfair trade laws keeping a minimum price level for products protects smaller businesses. When companies act in a predatory manner by setting low prices to drive competitors out of business, it is a predatory pricing strategy.
- Bait and switch schemes involve using a "too good to be true" deal on a product to attract customers into the store, then attempting to sell them a more expensive product. While bait-and-switch pricing is illegal in many states, stores can add disclaimers to their ads stating that there are no rain checks or that limited quantities are available to justify trying to get customers to buy different products.
