ETHICAL PROBLEMS IN PRICE AND
WAGE DETERMINATION
PRICE THEORIES
• One theory holds that a man is entitled
to enjoy the fruits of his labor and may
therefore establish any price he pleases
for the goods produced.
• Fair price as that one obtained by fair
competition in an open market
1.
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METHODS OF DETERMINING FAIR
PRICE
FAIR PRICE RELATED TO FAIR
RETURN
Varies with each industry
The return established as fair for one
industry should be fair for all members
of the industry
The pricing structure of a company is
fair when its profit in the same industry,
for the same amount of capital and total
resources used
METHODS OF DETERMINING FAIR
PRICE
1. FAIR PRICE RELATED TO FAIR
RETURN
Bases of fair price:
a. Equity and capital
b. Total value of assets used
METHODS OF DETERMINING FAIR
PRICE
2. PRICE IN A FIXED PRICE SYSTEM
•
In fixed price system the seller is
expected to establish the lowest prices
for his good and the customer is in turn
expected to take or leave them at price
quoted.
•
The advantages of fixed price system is
speed, equality for all buyers, minimum
prices and honesty between seller and
buyer.
METHODS OF DETERMINING FAIR
PRICE
2. PRICE IN A FIXED PRICE SYSTEM
Requirements of a fixed price system:
a. The seller must give his final price. If a
seller offers a secret discount, he violets
the requirements of a fixed price system
b. The fixed price should be the same for
all buyers. It is unethical to give one
person a “ special” price as this gives him
an advantage over others
METHODS OF DETERMINING FAIR
PRICE
3. BARGAINING OR MOVABLE PRICE
SYSTEM
•
Price arrived at through the process of
bargaining is said to be fair because
bargaining takes place in an open
market.
•
Where competition is really keen,
competing companies have to find ways
to reduce cost but not sacrificing quality
METHODS OF DETERMINING FAIR
PRICE
3. BARGAINING OR MOVABLE PRICE
SYSTEM
* Movable price system which makes
bargaining possible, is time
consuming, induces the seller and the
buyer to lie to each other and the
price is not uniform for all buyers of
the product.
METHODS OF DETERMINING FAIR
PRICE
4. BIDDING
• Some businessmen resort to bidding
to get the approximation of a fair
price.
• Bidders are expected to name their
final price which the minimum they
are willing to accept
METHODS OF DETERMINING FAIR
PRICE
4. BIDDING
•
As the bids are supposed to be
confidential and the lowest reasonable
bid is supposed to be accepted, the
price of the lowest qualified bidder
approximates the price
•
Purchasing managers in revealing the
bids of other people to other bidders is
definitely unethical.
PRICING PRACTICES
VARRYING PRICE POLICY
The price varies with each buyer,
depending on whether he is favored
customer or he has bargaining power.
2. FOLLOW THE LEADER PRICING
•
Pricing goods at almost the same level
as the better known and better quality
products, even if they could be sold at a
lower price
1.
•
PRICING PRACTICES
3. ODD PRICING
• This practice uses odd numbered
prices such as 8.97, 9.96, 10.99
4. LOSS LEADER PRICING
• This pricing technique quotes some
well known items at a lower price
while other goods are at regular
prices
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5.
FACTORS TO CONSIDER IN
ESTABLISHING FAIR WAGES
DUTIES AND RESPONSIBILITIES
AND THE REQUIREMENTS OF THE
JOB
LAWS AND REGULATIONS\
COST OF LIVING
GOING RATE OR COMMUNITY
RATE
FINANCIAL CONDITION OF THE
COMPANY