Monday, December 5, 2016

Illegal Price Gouging?

I've struggled with pricing products almost my whole career. I'd sort of grown up with cost-based pricing and then worked on establishing more value-based pricing (e.g. coffee in coffee shops--you know you can make a cup of coffee for less than a dollar). Now the latest rage in pricing in the news (and in a recent Inc magazine article) is algorithm-based pricing (e.g. pricing a good or service based on your zip code...or if you've watched a "Black Mirror" episode, your popularity). While I'd love to adjust prices for our services based on what customers could afford, I wonder if I'm falling afoul of a US law.

In "Business Law" class, I learned about a law from way back that prevents companies from charging different prices for the same products. In one company, there was a legitimate 'loophole' based on volume discounts or branding changes or lead-time requests (e.g. expedited service or similar to last minute airline tickets) so we could charge different prices to different distributors. But how does algorithm-based pricing get around Robinson-Patman Act of 1936? Anyone (perhaps these guys who says the law has more holes than Swiss cheese)? Has the FTC heard about these pricing schemes?

If I hear of a site doing this kind of pricing, I will try to boycott.

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