The following are the various types of UNETHICAL PRICING STRATEGIES:
Price Fixing - An understanding between business competitor to sell the similar products or services at the similar price.
Price skimming - Pricing strategies wherein marketer sets comparatively higher prices for a product or service at first and then lowers the price over time. It allows the firms to recover its sunk costs quickly prior to contest steps in and lowers the market prices.
Price discrimination - This exists when sales of similar goods or services are transacted at diverse prices from the similar providers.
Bid rigging - A promise between two or more competitors. It is a form of conspiracy, which is illegal in many countries. It can also be called as a part of price fixing and market allocation and involves promise between one parties of a group of bidders chosen to win the bid. It is practiced in situations where contracts decided by call for bids. For instance, government construction contracts.
Price war - A term used in business to show circumstance of powerful competitive rivalry accompanied by a multi-lateral series of price drop. One lowers the price and the other will lower to match the price. If one reduces the price below the original price, new round is initiated. In short-term, price wars are superior for customers who are able to take benefit of lower prices.
Dumping - It refers to selling goods in foreign markets at prices lower than prices charged in international markets or lesser than cost prices of products. This is done to destroy the domestic markets of the importing countries and gain domination in that market. Most countries are having anti-dumping measures in place.
Case 1:
Fuel Pricing In India
Background of the Case:
India is not only one of the rapidly growing countries in the world but also is home to one-fifth of world's population. At this rate of growth, the demand for the petroleum products is on an expected rise in the country. Considering this socio-economic ramifications, the government has been substantially involved in the pricing and supply of these petroleum products.
The involvement of the government is not ambiguous as the demand of the petroleum products has been increasing at 15% per annum. Also, the availability of these products at home ground is highly inaccessible, the country has to depend a lot on the imports of these products. The current import prices for India is 5.27$ per gallon as opposed to 3.27$ for USA. Further, Due to the rapid development of the economy diesel and petrol was required heavily for the carrying goods within the country. And Also due to the rapid development of the automobile sector, the demand for the petroleum products increased. Around 250 million of the country lives below the poverty line and a majority of the population have been classified as the Middle Class. It becomes the government's responsibility to provide this section of the country with cooking fuel in subsidized prices as it cannot be afforded by them. Therefore, any sharp rise in the prices of these products adversely affects the Indian economy.
Course of Action:
After Independence, The cost realization of the companies was linked to 'import parity' type of pricing, known as Value Stock Pricing (VSA). It was a cost plus formula of the import price which included elements like shipping charges up to the Indian docks, insurance, import duties and transit losses. It was followed by Administered Price Mechanism (APM) which implicated contrived price fixing by the government and rise or fall in the prices which became a political decision, rather than being a balanced economic choice. The verdict to pull apart the APM was taken to shift from contrived pricing of petroleum products towards pricing situation driven by demand and supply market forces. The government bought into power a pricing method with effect from 1st April 2002. The new mechanism was designed to isolate the prices of petroleum products in our local market from unstable international crude oil prices. It was also ensured that the prices of certain products like kerosene and LPG remained support financially as per the government policies.
The weakness of this new system came into the forefront with a spurt in the crude oil prices. On 5 July 2010, Protests were held against a hike in fuel prices blackout of markets, airports and schools across India and thousands of people were detained as violence blazed in many cities.
Due to the unsteady pricing mechanism in the country, Pranab Mukherjee Finance Minister INDIA while showcasing Budget 2009-10 on July 6, 2009 established a committee to guide on a successful and feasible system of pricing petroleum products. In August 2009, Dr. Parikh was selected the chairman of this panel.
Judgment:
Key Recommendations from the Parikh Committee:
Domestic prices should be at par with the international prices, allowing a gateway for international prices to domestic users. Enabling the PSU's and renowned oil companies to remain high on liquidity.
No explanation for subsidy given to diesel and petrol.
Additional excise amount to be levied per vehicle on diesel car owners.
Smartcards for kerosene should be given to the Needy segment of our country and subsidy on LPG cylinders should be immediately withdrawn except for the Needy segment.
Price of Kerosene and LPG should be hiked marginally and should be in context to the agricultural growth and per capita income in the country respectively.
Conclusion:
The committee recommended that LPG and kerosene prices could be increased every year with the increase in per capital agricultural GDP and per capita income at insignificant rates respectively. Liberating petrol and diesel prices will not only endorse competition but also lead to more reasonable sharing of inflation burden, distressing mostly people who can compensate.
Case 2:
IPL BID RIGGING
Issues Covered
Sweat equity
Bid rigging
Sweat Equity:
Sweat equity is a term which implies a contribution by a party to the company in the form of effort instead of capital for which the party is entitled to a share in the company holdings.
This is basically used by start-ups to attract high skilled employees who get part-ownership in the company on account of their competencies and do not have to contribute to the capital of the company.
Bid rigging:
Bid rigging is a form of fraud in which a commercial contract is promised to one party even though for the sake of appearance several other parties also present a bid. This form of collusion is illegal in most countries. It is a form of price fixing and market allocation, often practiced where contracts are determined by a call for bids.
BACKGROUND:
IPL planned to increase the franchise teams from 8 to 10 for IPL 4, 2011. The IPL had been a success story with a lot of business heavy weights investing in it giving rise to a completely new business segment. The first season of IPL had 8 franchisees and the base price set for each was $50 million.
Two new Indian Premier League franchisees were unveiled on March 8 for bidding.
The cities that could have bids for franchisees were Ahmedabad, Visakhapatnam, Kanpur, Dharamshala, Nagpur, Indore, Gwalior and Cuttack.
IPL committee expected around 25 bids for these 2 new teams. Some of the companies, PE funds, media persons who had expressed their interest in the new teams were
1. Videocon Industries 2. Sahara Group 3. ICICI Ventures
4. Marylebone Cricket Club 5. Salman Khan 6. Amitabh Bachan
7. Ajay Devgan 8. Adani Group 9. Muthoot Group
9. Hero Honda 10. Sharad Pawar 11. Rendezvous Sports World
But, IPL made drastic changes in terms of the base price for the two new franchisees thus giving an indication that IPL4 was going to be even bigger than any of the previous seasons. It also tightened the rules for bidding thereby. The base price of the two new franchisees was increased from $50 million in the first season to $225(1040 crores). Bidder networth should be over $1 Billion (~ Rs. 4500 crores). Also, interested parties should submit a bank guarantee of Rs. 460 crores to participate in the bidding process. Only four parties remained which satisfied the strict bidding rules so set up.
1. Sahara Group
2. Adani Group
3. Videocon Group (VC Digital)
4. Rendezvous Sports World.
CASE:
The entire controversy started soon after Rendezvous Sports World (RSW) won the 10 year rights for the Kochi IPL team for $333.33 Million, Lalit Modi, Commissioner of IPL was sceptical regarding the share holding pattern of the Kochi IPL Team Owners - RSW which he made public in his tweet. One of the owners, Sunanda Pushkar was offered 70 crore worth of sweat equity. This sweat equity so offered was not in accordance with the provisions set up under the Companies act for the same.
Rendezvous Sports World Private Limited is a private limited company and it had granted 70 crore worth equity to Sunanda pushkar claiming that she has a professional expertise, expertise in event management and brand management. This limited company was a consortium of different companies which included Anchor Earth, Parani Development private limited, Anand Shah Developers and Film waves. Media had brought to light that Rendezvous Sports had violated all the provision of the Companies Act, 1956 in giving Sunanda Pushkar part ownership in the company by means of sweat equity. This led to public embarrassment for her and ultimately she gave up her sweat equity.
However the prime motive was not to point out the irregularities in the share holding pattern of Rendezvous Sports World Private Limited but it was targeted at Mr. Shahshi Tharoor who had earlier alleged Mr. Lalit Modi of delaying the process of accepting the bid on behalf of Rendezvous Sports World Private Limited.
By pointing out this iregulaties Mr Lalit Modi wanted to point out the role of Mr Shahshi Tharoor who allegedly had an affair with Sunanda pushkar in pushing the interests of Rendezvous Sports World Private Limited in which he himself had indirect holdings.
This led to Mr. Shahshi Tharoor resigning from the cabinet with the issue of sweat equity out in public another issue was in the making and that was relating to BID RIGGING.
IPL Kochi owners brought to the notice of BCCI that the officials of IPL had asked them to keep their bid below $300 mn while they had asked Videocon and Adani Group to bid above $310 mn as Lalit Modi wanted to have a franchisee in Ahmedabad and not in Kochi not only this Lalit Modi had also offered the owners Of IPL Kochi an extra $50mn to surrender the ownership.
With this case of bid rigging out against Lalit Modi his transactions in the bidding process of the inaugural IPL were also exposed which were followed by IT raids and BCCI enquiries into teams like Rajasthan Royals and Punjab Kings XI.
The timeline for the entire case is as shown below
13th April: Shahshi Tharoor the junior foreign minister accuses the IPL commissioner of delaying the process of approving RSW's bid.
19th April: Mr Shahshi Tharoor quits over allegation of involvement in issues regarding sweat equity as he had an affair with Sunanda Pushkar
19th April: Investigation is ordered in the financing and investment activities carried out by IPL and IPL teams
21st April: 4 IPL teams were raided by the TAX authorities
23rd April: Investigation of corruption and bid rigging charges against Lalit Modi begin
25th April: Cricket board suspends Mr Modi, shortly after IPL final
Case 3:
HOARDING & MANIPULATION TO PUSH UP SUGAR PRICES DURING JANUARY 2010:
During January 2010, the retail prices of Sugar reached Rs. 45 per kg. & was expected to rise further because of Holi where the demands of sweet would increase thereby increasing the demand of sugar. So the sugar price was expected to reach Rs.50 just before the festival of Holi.
This price hike was a result of HOARDING of sugar by the various wholesalers & retailers. Some other factors contributing to this price hike was bulk purchase by industry & MANIPULATION of market sentiments by the private mills.
The common man was highly suffering due to this price rise & government did not have any answers to this. People feared that this would adversely affect their holi & their moods were sour. Also the MARRIAGE SEASON was approaching & people feared that if once the price went up it would continue to be up irrespective of the fact that the demand would increase or the supply would increase. An indirect effect of this price hike in sugar was that even the prices of tea & coffee were hiked & this greatly affected the mass of people.
This price hike in sugar was mainly observed in Lucknow & adjoining cities mainly in the state of Uttar Pradesh. The U.P. government held a meeting to discuss the alarming sugar price situation & review the implementation of the ESSENTIAL COMMODITIES ACT (ECA) & THE PREVENTION OF BLACK-MARKETING AND MAINTENANCE OF SUPPLIES OF ESSENTIAL COMMODITIES ACT.
THE ESSENTIAL COMMODITIES ACT (ECA):-
The reason why Essential Commodities Act, 1955 came into being was to make sure that essential commodities were easily available to the consumers and so that they can be protected from the traders. The control of production & the distribution & pricing of the goods can be regulated by this act. Under this Act, Departments of the Central Govt & the State & the Union territory govt. have the authority to regulate the production, pricing & the distribution of all the essential goods & commodities. This involves ensuring that they are available at fair prices to the consumers.
The essential commodities are distributed into the following categories under this act. They are:
ï‚· Cotton
ï‚· Raw jute and jute textile
ï‚· All the drugs used for medicinal purposes
ï‚· Petroleum & petroleum products
ï‚· Inorganic, organic or mixed fertilizers
ï‚· Food items such as milk, vegetables, sugar, oil.
THE PREVENTION OF BLACK-MARKETING AND MAINTENANCE OF SUPPLIES OF ESSENTIAL COMMODITIES ACT:-
This Act is used for prevention of unethical trade practices such as and black-marketing & hoarding of essential commodities. It was implemented by the State Govt. & the Union Territory Administration. This Act empowers them to detain those individuals whose actions turn out to be prejudicial to the supply of essential goods & commodities. The Govt. can prosecute & detain persons to prevent black-marketing & hoarding of essential goods & commodities.
ACTION:-
The U.P. government reviewed the price situation of sugar & along with the approval of the cabinet, decided to impose restrictions with respect to sugar in order to control the rising prices & make sure it is available to the consumer at fair price. Under this decision, they prosecuted approximately 1000 people under both these Acts, mainly the retailers & wholesalers & they convicted approximately around 25 people under both these acts. Gradually the prices of sugar dropped to Rs.30 per kg by the end of February 2010. Thus the implementation of The Essential Commodities Act & The Prevention of Black-marketing and Maintenance of Supplies of Essential Commodities Act resulted into the downfall in the prices of Sugar.
Case 4:
Dumping of Sport Shoes in India by China
Dumping in international trade and law is the practice by which the exporters of one country sell their products in another country, at a price which is lower than the price of that good charged in the exporter's country, or lower than its costs of production. According to the WTO agreement, anti-dumping action is allowed to be taken by countries, only if there is material damage suffered by the competing domestic industry. Hence, to take anti-dumping action, the government has to show that dumping is taking place, followed by the extent to which it is taking place, and lastly prove that it has caused damage to the domestic industry. Hence, to take anti-dumping measures, the government needs to prove that there is damage done to the domestic industry.
In India, the ministry of commerce and industry looks into matters related to dumping. During 1999-2000, the ministry received information from reliable sources regarding dumping of sports shoes in India and exported from China. The designated authority then issued notices to the exporters from China and sent a copy of the notices to the importers of shoes in India, and advised them to submit their views. The authority also sent a questionnaire to exporters from China, to find out relevant information. They included Beijing Daihua Group, Shanghai Huoju Shoe Industrial Co. Ltd. and many 8 others. A questionnaire was also sent to importers namely Reebok India Company, Bata India Ltd. and Adidas India Pvt. Ltd., for necessary information
The domestic producers were asked to give information regarding any injury parameters and the cost of production. This information was presented by the following domestic producers: Relaxo Footwear Ltd., API Associates Ltd., Nikhil Footwear Ltd., and Lakhani India Ltd.
The domestic industry reported that there was no decline in demand of sport shoes but they faced material injury (decline in their business) on the following account:-
The market share declined from 74.09% in 1999-2000 to 57.81% for the domestic industry in India
The imports from China are in very high quantity as they are even routed through Hong Kong and Singapore. The imports increased from 4.68 lakh shoes in 1999 to 5.7 lakh pairs of shoes
Domestic industry production declined from 11.24% in India compared to the previous year.
The capacity utilization has decreased from 62.97% in 1998 to 60% in 1999 and even further to 53.26% in India.
The period starting from 1.4.2000 to 30.9.2000 was the period of investigation (POI).The investigators confirmed the findings that the domestic industry had reported and decided to take appropriate action.
The exporters did not respond to any of the notices sent to them, which included questionnaires to find out relevant information regarding the prices of shoes in the Chinese market. However, information regarding domestic selling prices and prices charged in third countries was made available by reliable sources. These were the best sources of information available and hence, were used to find out the level of dumping.
The authority considered imposing an amount of duty equal to the level of dumping to remove the unfair advantage to the Chinese exporters while keeping the level of competition in the domestic market the same. Hence, they imposed the anti-dumping duty such that, the minimum price charged for unbranded and low end branded shoes will be 6.277$ per pair, and that for the branded category which includes Nike, Reebok and Adidas will be 18.44$ per pair. Thus, the anti-dumping duty will be the difference between the import price and the minimum selling price as given above.
Thus, the unfair edge gained by the Chinese exporters was eliminated, and the competitiveness of the markets was also sustained. There was no restriction on imports of shoes from China, which did not affect the availability of goods for the consumers.
