Price Escalation and Issues
According to Cavusgil, Knight & Riesenberger (2012), price escalation is the pricing discrepancy where goods are sold expensively in foreign markets as opposed to the local markets. It can be misleading to an international marketer in that it can make him or she think that the higher prices charged in the foreign markets implies higher profit, and, therefore, him or she may end up running at a loss. This owes to the fact that the higher charges imposed on the foreign goods cater for the high hidden costs.
Castro, Irizarry, Ashuri (2014) attributed shipping costs, longer distribution channels, middlemen, tariffs, warehousing and taxes such as the duty tax imposed on the foreign goods to the increased prices of the foreign goods. In addition, they argue that the need for higher profits can also drive the international marketers into increasing the costs of their products and thus the price escalation. It is, therefore, evident that the factors that lead to price escalation also affects the good sold in foreign countries or the exports.
There are several ways to counter price escalation. To begin, shopping locally helps in preventing price escalation as the locally produced goods are not subjected to many price escalation factors such as the increased costs of transportation, duties, and tariffs. Besides, just like shopping locally, selling goods locally also reduces price escalation. Selling of goods locally also saves one the cost of having to hire a lawyer to deal with the complex nature of the international trade (Weinzimmer & McConoughey, 2012).
The international marketers should aim to sell their products in the free trade zone. This will help in reducing escalation of prices. Furthermore, they should aim at minimizing the production cost that in return will save them a significant amount of money in the long run. In addition, the international marketers can help reduce price escalation by reclassifying their products as those with lower duty. This move will help them to reduce the tariffs and hence curb price escalation.
The ethical issues usually associated with pricing aim at protecting both the customers and the competitors from unethical pricing strategies that are attempted by the unscrupulous marketers. The ethical pricing strategy includes fair pricing where the cost of the product is directly equivalent to the quality of the product. The marketer can further cut the cost of a product to stimulate its sale. This is usually done on the outdated stock to pave the way for the new stock.
Some of the unethical pricing include hoarding and selling the products at a much higher costs, lowering the cost of products which leads to unfair competition and selling of counterfeit goods. In addition, some traders lower their prices to attract customers with an intention of raising them latter that is unethical. The trade law also opposes monopoly as it leads to exploitation of the customers. A monopoly occurs when there is only one source of a certain product. This further implies that only one company fixes the prices for the whole market. The trade laws, therefore, advocates for competition as this ensures reasonable prices since when one company raises it prices, the consumers can swiftly purchase goods from another company. The United States Trade Commission forces monopolistic companies to split to pave the way for fair competition as witnessed in the division of American Telephone and Telegraph Corporation in 1982 which resulted in other competitive phone industries.
Cavusgil, S., Knight, G., & Riesenberger, J. (2012). International business. Upper Saddle River, N.J.: Prentice Hall/Pearson.
Castro-Lacouture, D., Irizarry, J., & Ashuri, B. (2014). Construction Research Congress 2014. Reston, Va.: American Society of Civil Engineers.
Weinzimmer, L., & McConoughey, J. (2012). The Wisdom of Failure. New York: John Wiley & Sons.