I once wrote a blog post about fair pricing, and today I thought to share my thoughts about the opposite. The concept of fair pricing is a topic from the Business Ethics course. It is a debatable topic because what is considered fair may vary and are mostly subjective. There are however very clear cases of unfair pricing situations which I will quickly explain below:
- Dynamic pricing or Price discrimination – the process of creating fluctuating prices based on algorithms. This is very predominant, especially with online purchases and other activities. Here algorithms are created based on the user’s history of online purchases and the seller uses the information to gauge or predict the spending habit of the buyer. There have been several arguments about the fairness of dynamic pricing, and these are still ongoing as it seems like the world has generally adjusted to accepting them. It is also often said that if the two parties are aware and happy with the purchase, the transaction is said to be ethical, even if it is at a varied price, but the issue here is that most buyers here do not even realize the prices are varied.
There are three levels of Price Discrimination:
Level 1 – charging buyers different prices based on their willingness to pay.
Level 2 – when discounts are grated to buyers based on the quantity of purchase.
Level 3 – when pricing is based on the demographic groups to which the buyers belong.
- When the goods or services are excessively available in the market, the price becomes lower, without taking into consideration the cost incurred to make the goods or services available. An example of this is the services of accountants and other professional services; the fees charged by these professionals are regulated and the number of practitioners is determined by the professional bodies.
- When there is collusion by some “important” players in a good/services market or when there is deliberate hoarding of goods and services.
- When there is a special situation of need, the seller takes advantage to hike the price of the goods or service. This usually shows the Welfare Paradigm of operation.
- Situations of distress -. A good example here is when a landed property is sold at “Forced Sale Value” maybe because the same was pledged as collateral with a bank and the obligor is unable to pay up the loan. The force sale value is usually about 70% of the open market value and it is used to evaluate the adequacy of collaterals. Oftentimes however when the obligor is unable to meet repayment of the loan, the collateral is sold to recover the loan. Unfortunately, the consideration here is usually the outstanding loan amount, so the property gets sold at 30% lower than its real value. The loss to a loan obligor is therefore not only the business for which they have borrowed but also the “devaluation” of their property.
Thank you for stopping by and reading my blog today, I will see you in the next post. Please anticipate an interesting read.
Cheers!
#MEMBA 11
