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Chapter 24

MCS 3040 Chapter Notes - Chapter 24: Price Discrimination, Consumer Protection, Fax


Department
Marketing and Consumer Studies
Course Code
MCS 3040
Professor
Joseph Radocchia
Chapter
24

Page:
of 3
Chapter 24
Sales & Marketing: Price, Distribution & Risk Management
Price
Usually price is determined when forming contract but in a few industries in Canada, prices are
regulated by government agencies or are subject to regulatory bodies that set prices between
producers/growers & users (Eg. utilities & agricultural marketing boards)
Legal regulation of price is to stop practices that create an uneven playing field between market
participants and therefore harming competition
Pricing Practices between producer and commercial purchaser
The federal Competition Act prohibits unfair pricing practices, including those involving the producer
and its commercial purchaser
Objective is to create a level playing field
Act seeks to ensure that commercial customers aren’t subject to unfair differential treatment that could
really reduce competition in the marketplace
The completion act includes…
Pricing Conspiracies
Some businesses will manipulate the market by conspiring w/ direct competitors to control prices
The penalties for conviction have been increased recently to a max of 14 years and/or a fine of $25
million
For this criminal offence to be proven, it must be established that there was an agreement to conspire
to set prices and also that the agreement lessened competition
If the conspiracy is considered sufficiently serious, violators can be incarcerated with jail time up to 1
year
Bid Rigging
Bid Rigging: Conspiring to fix the bidding process to suit the collective needs of those submitting bids
Penalties include fines and/or imprisonment
Can take many forms such as agreements to submit bids on a rotating basis or to split a market
geographically
Abuse of Dominant Position
Abuse of a dominant position: Conduct that is viewable under the Competition Act b/c the dominant
company or group of companies have engaged in anticompetitive behaviour that unduly prevents or lessens
competition
Anticompetitive acts include buying up products to prevent the erosion of price levels, requiring
suppliers to sell only to certain customers and selling products below acquisition cost in order to
discipline or eliminate competitors
To find them guilty, the competition tribunal must find that the company or group under investigation
substantially controls the market and that they have engaged in a practice of anticompetitive acts, and
that the practice has the effect of preventing or lessening competition in the market
Tribunal may order the offenders to take corrective action and may impose admin penalties up to $10
million
Price discrimination: The failure to provide similar pricing terms and conditions to competing wholesalers or
retailers for equivalent volume sales at an equivalent time
Usually occurs when producer responds to a customers pressure tactics
Differential discounts are allowed only if it can be shown that customers who were prepared to
purchase under equivalent conditions were offered the same terms
Predatory Pricing: The practice of setting unreasonably low prices to eliminate competition
Distribution (Place)
Distribution includes process of ensuring goods get to customers including shipping & transport
Distribution decisions determine whether goods will be sold by retailers, wholesalers, door-to-door or
e-commerce vendors
How corps. Are structured including merger decisions resulting in horizontal or vertical integration is
part of distribution
Organizational Structure
Most times businesses can structure themselves as they please but sometimes if competition is
adversely affected (typically through mergers, acquisitions or takeovers) regulators may step in
Mergers, Acquisitions & Takeovers
The competition Act sets out the conditions under which the bureau can seek an order ending a
proposed or actual merger
Questions is whether a merger or proposed merger prevents or lessens competition substantially
Competition Act now provides for a 2-stop review process of what is substantial
Business proposing merger must notify the director of their intentions prior to the merger
If commissioner has concerns about merger, parties can be ordered to provide further info
Multi-Level & Pyramid Selling
Multi-Level Marketing: A scheme for distributing products & services that involves participants recruiting
others to become involved in distribution
Not always illegal
If a genuine business activity isn’t obvious it might be illegal
Legal multi-level selling schemes are he subject of regulation
Pyramid Selling: An illegal form of multi-level selling under the competition act
Participants pay money for the right to receive compensation for recruiting more participants
Participant is required to buy a specific quantity of product for purpose of advertising, before
participant is allowed to join
Participant is knowingly sold commercially unreasonable quantities of product
Not allowed to return product
Discriminatory Distribution Practices
Producers may discriminate unfairly between customers through distribution policies as well as pricing
practices
The practice reduces or eliminates competition
Many practices that discriminate are reviewable
Refusal to deal: When a seller refuses to sell to a purchaser on the same terms as those that are offered to the
purchaser’s competition
Exclusive Dealing: When a seller agrees to sell to the purchaser only if the purchaser buys from it exclusively
Tied Selling: When a seller will sell to the purchaser only if the purchaser buys other less desirable goods as
well
Anticompetitive Behaviour: Conduct that restricts competition
Direct Marketing
Regulators traditionally focused on door-to-door sellers but now began to look for mays to protect
consumers f4om intrusion by other means
Competition act now addresses telemarketing and online shopping etc.
Door-to-door selling
Protects consumers from untoward pressure and allowing them the chance for second thought and the
opportunity to cancel the sale
Protected under provincial consumer protection legislation that requires,,,
Those selling door-to-door to be licensed
Contracts in excess of certain dollar amount to be in writing and disclose specific matters
Consumers who sign a contract to be allowed a “cooing off” period during which they can cancel
contract
Telemarketing
Regulations apply to both inbound and outbound calls but doesn't extend to fax, internet
communications or prerecorded messages
Protects consumers from high pressure tactics
Online Retailing
Selling directly to consumers over internet