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Canada (162,403)
MCS 3040 (228)
Chapter 24

Chapter 24

6 Pages
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Department
Marketing and Consumer Studies
Course Code
MCS 3040
Professor
Joseph Radocchia

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Chapter 24: Sales and Marketing: Price, Distribution, and Risk Management Price • price is freely negotiated when forming a contract Pricing Practices between Producer and Commercial Purchaser • The federal Competition Act prohibits unfair pricing practices, including those involving the product and its (commercial) purchaser • An important policy objective of the legislation is to create a level of playing field with respect to channel power Pricing Conspiracies • Definition: Every person commits an offence who, with a competitor of that person with respect to a product, conspires, agrees or arranges a fix, maintain, increase or control the price for the supply of the product • For a criminal offence to be proven, it must be established not only that there was an agreement or a conspiracy to set prices, but also that the agreement lessened competition • This latter requirement relates to the market structure (factors such as number of competitors and barriers to entry) and the behaviour of the parties (implementation of their agreement combined with market power) • Read about fines on pg 616 Bid Rigging • Specialized form of conspiracy by producers/suppliers to manipulate a market through price • Definition: Conspiring to fix the bidding process to suit the collective needs of those submitting bids • It is a serious criminal offence, since it attacks the heart of the competitive process • Penalties include fines and/or imprisonment • Can take many forms such as: ◦ agreements to submit bids on a rotating bases ◦ To split a market geographically • Bid rigging investigations are not uncommon Abuse of Dominant Position • Definition: Conduct that is reviewable under the Competition Act because a dominant company or group of companies have engaged in anti-competitive behaviour that unduly prevents or lessens competition • Anti-competitive 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 take action, Competition Tribunal must find that the company or group of companies substantially controls the market under investigation, that those under investigation have engaged in practice of anti-competitive acts, and that practice has the effect of preventing or lessening competition in the market substantially • The tribunal may order the offenders to take corrective action and may impose administrative penalties up to $10 million • Price Discrimination: The failure to provide similar pricing terms and conditions to competing whoesalers or retailers for equivalent volume sales at an equivalent time ◦ This situation may arise either because a producer, unsolicited, offers discriminatory prices, or mor commonly, because the producer responds to a customer's pressure tractics ◦ Differential discounts are permitted provided it can be shown that customers who were prepared to purchase under equivalent conditions were offered the same terms ◦ Any differences must be a direct reflection of cost differentals • Predatory Pricing: The practice of setting unreasonably low prices to eliminate competition ◦ Can occur at different levels of the distribution chain ◦ It was a criminal offence under the Competition Act ◦ To attain a convction, it had to be shown that prices were unreasonably low and that they effectively reduced competition ◦ Because of this burden of proof, relatively few charges were brought ◦ Instead of criminal prosecution, the Competition Bureau can now refer to complainants to the Competition Tribunal under the reviewable abuse of dominance provisions ◦ The tribunal applies the civil burden of proof and has the authority to make orders preventing or stopping the particular behaviour ◦ The threat of civil regime may well lead to a voluntary agreement between the offending party and the bureau ◦ Under the criminal provisions, the bureau used two-step approach to evaluate predatory pricing: ▪ 1. Did the alleged predator have the ability unilaterally to affect the industry pricing, and could that dominant position or power be used to recoup the losses incurred during the period of predatory pricing once the competitor was gone? ▪ 2.Was the complainants business unprofitable during the period of reduced prices to the extent attributable to the predators conduct? Price Maintenance • Definition: The attempt to drive the final retail price of goods upward and the imposition of recriminations upon non-complaint retailers ◦ Might do this exerting pressure on the retailer or by placing notice on the goods themselves ◦ For example: Because of its incresing concern that widely advertised low prices for its products will damage product image • Two aspects of this strategy are reviewable: ◦ The attempt to influence the final retail price upward ◦ The recriminations against non-complaint retailers • Companys can refuse to sell to retailers that are selling at unreasonably low prices, provided it can show that the retailers were using its products in any of the following ways: ◦ As loss leaders (below cost price) ◦ For bait-and-switch selling ◦ In misleading advertising ◦ In sales where they fail to provide a reasonable level of service • Read the two cases on pg 619 Pricing Practices between Seller and Customer Sale or Bargain Prices • It is a reviewable offence for the seller to state that a price is less than ordinary price (on sale, reduced, clearance) when it is not • An advertiser may legitimately claim a price to be ordinary price if: ◦ (it) reflects the price at which suppliers generally in the relevant market are have either: ▪ Sold a substantial volume of the product within a reasonable period of time before or after making the representation (volume test) or ▪ Offered the product for sale in goods faith for substantial period of time recently before or immediately after making the representation (time test) • Both volume test and the time test are applied according to specific guidelines established by the Competition Bureau • Any review by the Bureau requires extensive sales data for the entire relevant market to be supplied • Placing restrictions to the promise in small print on the advertisement is no protection if the overall impression remains misleading • When does stating that prices are “subject to error” protect the advertiser? ◦ Such a clause provides protection only in the context of the catalogue sales since catalogues are not printed regularly and some protection is reasonable for the seller ◦ Since this is a reviewable offence, the due dilligence defence applies and the promoter should always correct errors Sale Above Advertised Price • A civil provision of act prohibits the sale of a product at a price higher than that advertised unless the price was a mistake which immediately corrected • Otherwise, the seller faces a penalty of up to $200,000 Double Ticketing • Definition: The offence of failing to sell at the lower of the two or more prices marked on or otherwise appearing with regard to a product • Obligations extend to in-store promotions and displays, as well as prices listed in store computers • If consum
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