Predatory Pricing: A Case Study of E-Bay

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E-Bay's Impact on the Market

E-Bay has transformed the way different products reach the consumers in the market today by shortening the distance between the seller and the buyer. As the internet continues to grow, more customers are shopping on online platforms such as eBay while sellers have a chance of pushing themselves through a marketplace that is well worth using. My firm deals with different types of makeup products including foundation, lipstick, and highlighters. As part of the sales team, I am responsible for ensuring that the products achieve the highest prices on eBay, a giant online platform by coming up with products that will enhance the sale price for the product. In my case, I will employ price skimming as a pricing strategy where I will set a high price at the beginning and change it as the market evolves.

Researching Competitor Prices

One of the key ways of achieving the highest price of products on eBay is by researching the prices of other substitute products in the market. Given that there is increased competition in the make-up products' market, it is important that any particular seller understand the other players in the market so as not to lose regarding sales in the market (Funk 115). eBay allows one to understand the going rate for different items by checking the final bids in similar past listings.

Offering More Delivery Options

By offering more delivery options, the firm will be able to achieve the highest price for its products. In most cases, eBay shipping times are hard for buyers to predict and therefore the buyers tend to avoid such items in case they need the products urgently. By ensuring that there is a recorded delivery option where the buyers get a shipping number for the products they buy, it is easy for them to feel more assured and pay the price indicated (Ellison and Sara 141). Furthermore, buyers tend to place more bids in case they feel that in case a dispute arises, it will be solved amicably, and therefore the products can be sold at a high price. Additionally, offering free delivery to buyers tend to entice them which means that the firm can charge a high price and still make sales in case it offers free delivery services.

Timing and Online Selling

When it comes to online selling, timing is a key factor in making sales. Once the product has been announced and advertised on a different platform, it has a chance of fetching high prices, and therefore the firm must ensure that it takes advantage of its status at different times to sell at high prices. Instances, where other companies are facing difficulties such as law issues, internal, and poor management, should be considered ideal for fetching high prices in the market (Funk 115). Additionally, customers are willing to pay more for make-up products in the festive seasons, and therefore the firm must use this timing to fetch high prices in the market.

Importance of Good Product Images

Online buyers are highly intrigued by what they see on online platforms such as eBay. Therefore, for the firm to fetch high prices, it has to ensure that it takes good pictures of its products for the buyers to see what they are actually getting. It is important to ensure that the products are well lit with no flash rebounding on surfaces given that poor images of the products may keep off the seller. Furthermore, taking good pictures to ensure that the customer can relate the product to the charged price and decide whether it is worth it or not (Ellison and Sara 145). With a poor picture, customers may view it as a rip-off and avoid the product at all costs.

Effective Communication with Customers

Lastly, one of the key factors of online marketing is communication between the seller and the customer. To achieve the highest price of the products, the seller must engage with the customers and answer any of their questions in a timely and explicit manner. Given the fact that make-up products have continually become popular among a wide range of customers, many questions are raised by interested parties and delivered to the seller in his or her eBay inbox (Drury 275). By answering the prompts in time, potential bidders are encouraged to consider buying the products at a higher price as opposed to when they are ignored by the seller.

What is predatory pricing?

Predatory pricing entails a state where a seller charges very low prices while aiming to get rid of competitors so that the supplier gets a chance of charging considerably higher prices later. In such a case, the predator is willing to sell its products at a loss or a price that is lower than the cost for a certain period as it looks and hope either go bust or settle for not selling the product (Kaplow 11). Once the competing companies leave the market, the predator has a chance of pushing the price back up. When it is successful, predatory pricing can help the predator re-established or establish a monopoly. An example of predatory pricing is dumping where a company exports goods at a lower price compared to the home prices or the cost of production (Barthel 8). At most times, predatory pricing targets new companies seeking to enter the market as the already existing players seek to protect their mega profits. In case the competitors survive the predatory pricing strategy, the authorities do not intervene as lower prices mean that the consumers have more choice in a competitive market (Pettinger 1). However, authorities must intervene in case the competitor is killed off to protect the customers.

What federal acts make it illegal?

In the U.S., the three federal acts that make predatory pricing illegal are the Sherman Act, the Federal Trade Commission Act and the supplementary Clayton Act. Despite the fact that these acts were enacted at different times as opposed to being enacted as a unit, they have to be understood as a body of law or a totality since a considerable overlap of coverage exists among them. Under section 2 of the Sherman Act, monopolization or any attempt to monopolize any part of commerce among U.S. states is condemned (Barthel 22). Under Section 5 of the Federal Trade Commission Act, any unfair or deceptive methods of competition are declared unlawful, although offences under this Act are covered mostly under the Clayton and Sherman Acts. Under section 2 of the Clayton Act, price discrimination is rendered unlawful in case it substantially lowers competition, destroys or prevents competition, or creates an injury or monopoly (Barthel 23). Some factors that may be considered predatory include primary line discrimination such as cognate practices or local price cutting that are employed by firms to injure their rivals. In its requirements, the Clayton Act is fairly technical, and it prohibits discrimination in price between two buyers serving the same sellers (Barthel 23).

How are consumers hurt by predatory pricing?

Consumers only benefit from low prices during predation, and in case the firm has insufficient market power to recoup later. However, predatory pricing ends up hurting customers in the long run as it eliminates price competition thus leaving the customers at the mercy of the company which can, in turn, hurt them (Barthel 11). Once the competition is eliminated, the monopoly company can charge at whatever prices it feels like thus forcing the customers to accept higher exploitive prices. The Darlington Bus wars in 1994 where Busways, a new entrant into the market, offered free bus travel as it tried to force the rival Darlington Bus company out of operation is a predatory pricing example. Busways employed drivers from rival buses by offering them higher wages during the time when they offered free bus rides, and as a result, Darlington Transport Company went out of the market, leaving Busways Company with monopoly power (Pettinger 1). Another example involved Aberdeen Newspaper, which was fined by OFT for engaging in predatory activities after deliberately incurring losses as it looked to eliminate its rival from the market. As a result, Aberdeen Journals were fined 1.3 million pounds for violating the 1998 Competition Act (Pettinger 1).

Legal but unethical situation

While the government sets legislation to protect different stakeholders in the market, ethics are subjective as different people may not agree with how a business is run. In most cases, penetration pricing acts as bait to customers and are legal as long as they do not destabilize the other players in the market. However, once the customers are baited by underpriced samples, they may find it unethical when the company charges higher prices once it has already settled and convinced the customers (Kaplow 28).

Work cited

Barthel, Christian. "Predatory pricing policy under EC and US law." (2012).

Drury, Glen. "Opinion piece: Social media: Should marketers engage and how can it be done effectively?." Journal of direct, data and digital marketing practice 9.3 (2008): 274-277.

 Ellison, Glenn, and Sara Fisher Ellison. "Lessons about Markets from the Internet." Journal of Economic Perspectives 19.2 (2015): 139-158.

Funk, Tom. "Social Media Playbook for Business: Reaching Your Online Community with Twitter, Facebook, LinkedIn, and More: Reaching Your Online Community with Twitter, Facebook, LinkedIn, and More." ABC-CLIO, 2011.

Kaplow, Louis. "Recoupment and Predatory Pricing Analysis." (2016).

Pettinger, Tejvan. ‘’Predatory Pricing.’’ Economics Help. (2017). Accessed from https://www.economicshelp.org/blog/glossary/predatory-pricing/

on 6th December 2018.

September 18, 2023
Category:

Business Economics

Number of pages

6

Number of words

1555

Downloads:

32

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