Ethical Constraints on Pricing

Ethical Constraints on Pricing

• No other area of managerial activity is more difficult to depict
accurately, assess fairly, and prescribe realistically in terms of morality
than the domain of price.
• Factors such as Full disclosure, Consumer awareness, no excessive
profits on essentials, no excessive profits based on shortage, price
segmentation based on value etc. put enormous constraints on
pricing to be considered ethical.
Competition commission of Pakistan -
CCP
The Competition Act, 2010
• The Competition Act, 2010 (CA ’10) is a state of the art modern law which gives the Competition Commission of Pakistan legal and investigative
instruments and powers to engender free competition in all spheres of commercial and economic activity, enhance economic efficiency, and to protect
consumers from anticompetitive behaviour.
• The Act applies to all undertakings in Pakistan regardless of their public or private ownership and to all actions or matters that can affect competition in
Pakistan. Although essentially an enabling law, it briefly sets out procedures relating to review of mergers and acquisitions, enquiries, imposition of
penalties, grant of leniency and other essential aspects of law enforcement.
• Briefly, the law prohibits situations that tend to lessen, distort, or eliminate competition such as actions constituting an abuse of market dominance,
competition restricting agreements, and deceptive marketing practices.
• Abuse of Dominant Position. §3 of the Act prohibits the abuse of a dominant position through any practice that prevents, restricts, reduces, or distorts
competition in the relevant market. These practices include, but are not limited to, reducing production or sales, unreasonable price increases,
charging different prices to different customers without objective justifications, tie-ins that make the sale of goods or services conditional on the
purchase of other goods or services, predatory pricing, refusing to deal, and boycotting or excluding any other undertaking from producing,
distributing or selling goods, or providing any service.
• Prohibited Agreements. §4 of the Act prohibits undertakings or associations from entering into any agreement or making any decision in respect of the
production, supply, distribution, acquisition or control of goods or the provision of services, which have the object or effect of preventing, restricting,
reducing, or distorting competition within the relevant market. Such agreements include, but are not limited to, market sharing and price fixing of any
sort, fixing quantities for production, distribution or sale; limiting technical developments; as well as collusive tendering or bidding and the
application of dissimilar conditions. The Commission is authorised, however, to issue either individual or block exemptions under §5-9 of the Act.
• Deceptive Marketing. The Act prohibits deceptive marketing practices, in other words, any advertising or promotional material that misrepresents the
nature, characteristics, qualities, or geographic origin of goods, services or commercial activities. An Office of Fair Trade (OFT) has been created within
CCP specifically to oversee consumer protection issues under §10 of the Act.
• Approval of Mergers. The law prohibits mergers that would substantially lessen competition by creating or strengthening a dominant position in the
relevant market. The Act requires prior notice of proposed mergers or acquisitions that meet the notification thresholds stipulated in §4 of the
Competition (Merger Control) Regulations 2007. If the Commission determines this to be the case, it can prevent mergers or acquisitions, set
conditions or require divestitures. The Act does not distinguish between horizontal and vertical mergers. The term merger in §11 also covers joint
ventures, therefore they are subject to the Commission’s approval provided that they meet the notification thresholds.
PRICE-FIXING
In an effort to reduce or avoid market risks, business people have long been interested in setting prices with their competitors or
dictating or influencing the prices charged by their downstream intermediaries, such as distributors, dealers, and retailers.
There are two types of price-fixing: horizontal and vertical.

Horizontal price fixing

That is between competitors in a particular product.
• It is most famously done by the Organization of the Petroleum Exporting Countries.
• In 2006 At least 20 airlines were caught fixing the price of shipping international air cargo. They were fined $3 billion.
Vertical price fixing
It usually occurs among those in the supply chain, like an auto manufacturer and its dealers. A supplier and a reseller agree on the
prices the reseller will charge or the price-related terms of resale for the supplier's products.
PRICE-DISCRIMINATION
Price discrimination refers to the practice of charging different prices for
the same or similar goods or services.
First-degree price discrimination: This occurs when a seller charges
each individual customer a price that is equal to their maximum
willingness to pay.
Second-degree price discrimination: This occurs when a seller charges
different prices based on the quantity of goods or services purchased. For
example, a seller may offer a bulk discount for larger purchases.

Third-degree price discrimination: This occurs when a seller charges

different prices to different groups of customers based on factors such as
age, income, location, or other characteristics. For example, a movie
theater may offer discounted tickets for seniors or students.
 BID RIGGING:
Favoritism
Favoritism involves promising a commercial contract to one group, even though you make it look like
multiple parties had the opportunity to submit a bid.
Collusive Bidding
This refers to collusive practices in which competing firms conspire to manipulate the bidding
process for contracts, tenders, or other procurement opportunities in their favor.

PREDATORY PRICING
The practice of setting a price so low that a seller harms its own
profitability in an attempt to do greater harm to a competitor is predatory
pricing. The purpose of such behavior is either to discipline a competitor
for competing too intensely or to drive it out from the market and thus
reduce or eliminate its competition.
PTCL-Predatory Pricing.docx
JCR VIS-Predartory Pricing.docx
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