Identify the legal and ethical constraints on pricing decisions. Government regulation helps monitor five major areas of pricing: unfair trade practices, price fixing, resales price maintenance, predatory pricing and predatory bidding, and price discrimination.
Many states have enacted unfair trade practice acts that protect small businesses from large firms that operate efficiently on extremely thin profit margins; the acts prohibit charging below-cost prices. The Sherman Act and the Federal Trade Commission Act prohibit both price fixing, which is an agreement between two or more firms on a particular price, and predatory pricing, in which a firm undercuts its competitors with extremely low prices to drive them out of business.
Finally, the Robinson-Patman Act makes it illegal for firms to discriminate between two or more buyers in terms of price.