Topic 6 Pricing Under Various Market Conditions PDF

TOPIC 6 – PRICING UNDER VARIOUS MARKET CONDITION A market is the area where buyers and sellers contact each other and exchange goods and services. Market structure is said to be the characteristics of the market. Market structures are basically the number of firms in the market that produce identica...

TOPIC 6 – PRICING UNDER VARIOUS MARKET CONDITION A market is the area where buyers and sellers contact each other and exchange goods and services. Market structure is said to be the characteristics of the market. Market structures are basically the number of firms in the market that produce identical goods and services. Market structure influences the behavior of firms to a great extent. The market structure affects the supply of different commodities in the market. When the competition is high there is a high supply of commodities as different companies try to dominate the markets and it also creates barriers to entry for the companies that intend to join that market. Figure 6.1 Pricing, Product, and Advertising Strategies Available to Firms in Four Types of Competitive Markets The seller ‘s pricing freedom varies with different types of markets. Economists recognize four types of markets, each presenting a different pricing challenge. From most competitive to least competitive, these are pure competition, monopolistic competition, oligopoly, and pure monopoly. Figure 6.1 shows that the type of competition dramatically influences the range of price competition and, in turn, the nature of product differentiation and the extent of advertising. A firm must recognize the general type of competitive market it is in to understand the range of both its price and non-price strategies. Examples of how prices can be affected by the four competitive situations follow: PURE COMPETITION Under pure competition, the market consists of many buyers and sellers trading in a uniform commodity such as wheat, copper or financial securities. No single buyer or seller has much effect on the going market price. A seller cannot charge more than the going price because buyers can obtain as much as they need at the going price. Nor would salespeople charge less than the market price because they can sell all they want at this price. If prices and profits rise, new sellers can easily enter the market. Characteristics of Pure Competition · Very large number of producers: An important feature of this type of market system is the presence of big number of sellers that act independently and offer their products to large national and international markets. Example: the stock market, the exchange market. · Standardized product: Pure competitive firms produce a standardized product. Since the price is the same demanders won’t care which product to buy. All goods are substitutes for each other. They make no attempt to differentiate their products and there is not any non-price competition, because their goods are homogeneous. · Price-Takers: In purely competitive markets firms don’t try to control the price, because each firm produces only a small amount of the total product, so increasing or decreasing their output won ‘t affect the price. We may say that firms and pure competitive markets are price-takers: they can’t change the market price, they only adjust to it. Selling their goods at a higher price will result in loss of revenue, because 1000 sellers will offer their goods for a smaller price so the consumers, since the goods are identical, will buy less costly ones, because in this way they get more marginal benefits. There isn’t any reason to decrease the price, because sellers want to get higher revenues if it is possible. By decreasing price, they may lose higher profits. So, the price of the sellers will be the same, since their goods are identical. · Free entry and free exit: New firms can freely enter, and the existing ones may exit the pure competitive industry. No legal, financial, technological or other obstacles prohibit suppliers from selling their goods in any pure-competitive market. Even if pure competition is relatively rare in our real world, it is a meaningful starting point for any discussion about price and output determination. It provides a standard for evaluating the efficiency of real-world economy. Even if this kind of market system is extremely rare some industry may be a close approximation of it: market for agricultural goods, foreign exchange, and stock market. So, by means of them we can learn more about this model of market system. MONOPOLISTIC COMPETITION Under monopolistic competition, the market consists of many buyers and sellers that trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers. Either the physical product can be varied in quality, features or style or the accompanying services can be varied. Each company can create a quasi-monopoly for its products because buyers see differences in sellers‘ products and will pay different prices for them. Sellers try to develop differentiated offers for different customer segments and, in addition to price, freely use branding, availability, advertising and personal selling to set their offers apart. For example, Ty‘s Beanie Babies have cultivated a distinctive appeal that has both stimulated demand and seen the price of some Beanies rocket. Characteristics of Monopolistic Competition · There are many producers and consumers in the market. · There is not one firm that has total control over the price of the market. · Consumers assume that there are non-price differences among the products of competitors. · Barriers to entry and exit exist but there are few. · Producers have some control over the prices. · Producers and consumers have no perfect information. OLIGOPOLY Under oligopolistic competition, the market consists of a few sellers that are highly sensitive to each other‘s pricing and marketing strategies. The product can be uniform (steel, aluminum) or non-uniform (cars, computers). There are few sellers because it is difficult for new sellers to enter the market. Each seller is alert to competitors‘ strategies and moves. If a steel company slashes its price by 10 per cent, buyers will quickly switch to this supplier. The other steel makers must respond by lowering their prices or increasing their services. Good examples include industries like oil & gas, airline, and automakers. An oligopolist is never sure that it will gain anything permanent through a price cut. In contrast, if an oligopolist raises its price, its competitors might not follow this lead. The oligopolist would then have to retract its price increase or risk losing customers to competitors. Characteristics of an Oligopoly · Only a few numbers of firms operate in the market. · Profit maximization is a condition in this market. · Monopolies set their own prices. · Barriers to entry are high. · Firms make abnormal profits in the long-run. · Products may be homogeneous. · There is a relatively small number of firms supplying the market. PURE MONOPOLY A pure monopoly is a market structure where one company is the single source for a product and there are no close substitutes for the product available. Pure monopolies are relatively rare. For a provider to maintain a pure monopoly, there must be barriers preventing competitors from entering the market. Let's look briefly at some possible barriers: 1. Legal barriers: While there are laws in the United States that prohibit monopolies, there are several situations where the U.S. government allows them. In some cases, the monopoly may exist indefinitely with the government's permission and in other cases, a monopoly is granted for a specific period. Some examples of legal barriers are government-issued licenses, copyrights, and patents. 2. Control of resources: This barrier exists when a sole provider owns or controls an essential resource necessary to production. An example of this is Alcoa. For many years, Alcoa was the only producer of aluminum in the United States. Alcoa obtained exclusive mining rights to all of the bauxite aluminum ore mines in the country, and bauxite is necessary to the production of aluminum. This prevented competitors from entering the market. 3. Economies of scale: The economies of scale barrier occurs when the average total cost of a product goes down when production increases. Some businesses invest large amounts of money building the infrastructure to create their product. This is a fixed cost. Once the infrastructure is in place, the cost of producing a single unit becomes lower for each unit added because the fixed costs are spread out over a larger number of units. In terms of monopolies, an existing business with an established infrastructure has a cost advantage when producing large quantities of a given product, enabling it to undercut the competition on price. This is known as a natural monopoly and most typically refers to public utilities such as water services, natural gas, and electricity. Characteristics of a Pure Monopoly · Significant internal economies of scale – the minimum efficient scale may be so high that only one supplier can fully exploit available economies of scale (i.e. a natural monopoly) · High regulatory barriers to entry e.g. licenses required to operate, awarded franchises can give local/regional market power. Some state-owned firms have monopoly status. · High trade barriers which give increased monopoly power to a domestic firm protected by import tariffs. · A firm might have localized monopoly power with no close substitute available TOPIC 7: PUBLIC POLICY AND MARKETING Pricing decisions are often constrained by social and legal issues. For example, think about the pharmaceuticals industry. Are rapidly rising prescription prices justified? Or are the drug companies unfairly lining their pockets by gouging consumers who have few alternatives? Should the government step in? Price competition is a core element of our free-market economy. In setting prices, companies usually are not free to charge whatever prices they wish. Many federal, state, and even local laws govern the rules of fair play in pricing. In addition, companies must consider broader societal pricing concerns. In setting their prices, for example, pharmaceutical firms must balance their development costs and profit objectives against the sometimes life-and death needs of drug consumers Figure 7.1 shows the major public policy issues in pricing. These include potentially damaging pricing practices within a given level of the channel (price-fixing and predatory pricing) and across levels of the channel (retail price maintenance, discriminatory pricing, and deceptive pricing). PRICING WITHIN CHANNEL LEVELS Price Fixing A conspiracy among firms to set prices for a product is termed price fixing. Price fixing is illegal per se under the Sherman Act (per se means in and of itself). When two or more competitors explicitly or implicitly set prices, this practice is called horizontal price fixing. For example, in 2000, six foreign vitamin companies pled guilty to price fixing in the human and animal vitamin industry and paid the largest fine in U.S. history, a hefty $335 million. Vertical price fixing involves controlling agreements between independent buyers and sellers (a manufacturer and a retailer) whereby sellers are required to not sell products below a minimum retail price. This practice, called resale price maintenance, was declared illegal per se in 1975 under provisions of the Consumer Goods Pricing Act. Nevertheless, this practice is not uncommon. For example, shoe supplier Nine West was charged with restricting competition by coercing retailers to adhere to its resale prices. As part of its settlement, Nine West agreed to pay $34 million. Although this type of coercive price fixing is illegal per se, manufacturers and wholesalers can fix the maximum retail price for their products provided the price agreement does not create an ―unreasonable restraint of trade or is anticompetitive. It is important to recognize that a ―manufacturer‘s suggested retail price, or MSRP, is not illegal per se. The issue of legality only arises when manufacturers enforce such a practice by coercion. Furthermore, there appears to be a movement toward a ―rule of reason in horizontal and vertical price fixing cases. This rule holds that circumstances surrounding a practice must be considered before making a judgment about its legality. The rule of reason perspective is the direct opposite of the per se rule. Federal legislation on price-fixing states that sellers must set prices without talking to competitors. Otherwise, price collusion is suspected. Price-fixing is illegal per se—that is, the government does not accept any excuses for price-fixing. Companies found guilty of such practices can receive heavy fines. Recently, governments at the state and national levels have been aggressively enforcing price-fixing regulations in industries ranging from gasoline, insurance, and concrete to credit cards, CDs, and computer chips. Predatory Pricing Predatory pricing is the practice of charging a very low price for a product with the intent of driving competitors out of business. Once competitors have been driven out, the firm raises its prices. This practice is illegal under the Sherman Act and the Federal Trade Commission Act. Proving the practice of predatory pricing is difficult and expensive, because it must be shown that the predator explicitly attempted to destroy a competitor and the predatory price was below the defendant‘s average cost. This protects small sellers from larger ones who might sell items below cost temporarily or in a specific locale to drive them out of business. The biggest problem is determining just what constitutes predatory pricing behavior. Selling below cost to unload excess inventory is not considered predatory; selling below cost to drive out competitors is. Thus, the same action may or may not be predatory depending on intent, and intent can be very difficult to determine or prove. In recent years, several large and powerful companies have been accused of predatory pricing. However, turning an accusation into a lawsuit can be difficult. For example, many music retailers have accused Walmart and Best Buy of predatory CD pricing. Since 2007 alone, CD sales have plummeted almost 20 percent each year, putting music-only retailers such as Tower Records, Musicland, and a megamall full of small mom-and-pop music shops out of business. Many industry experts attribute slumping CD sales to new music distribution strategies— mainly digital downloads. Others, however, blame the big-box stores for pricing CDs as loss leaders to drive competitors out of business. Low CD prices don‘t hurt Walmart; it derives less than 2 percent of its sales from CDs, and low-priced CDs pull customers into stores, where they buy other products. Such pricing tactics, however, cut deeply into the profits of music retailers. Still, no predatory pricing charges have ever been filed against Walmart or Best Buy. It would be extremely difficult to prove that such loss-leader CD pricing is purposefully predatory as opposed to just plain good marketing. PRICING WITHIN CHANNEL LEVELS IN THE PHILIPPINES Pricing within channel levels focuses on the pricing practices and competitive dynamics among businesses operating at the same level within a distribution channel. Each level—whether it's manufacturers, wholesalers, or retailers—has unique pricing approaches influenced by internal cost structures, market competition, and regulatory standards. Let’s take a deeper look into how pricing works within each channel level and how policies shape these practices. 1. Understanding Channel Levels and Their Pricing Dynamics Within the Manufacturing Level: Competing manufacturers determine prices based on production costs, economies of scale, and branding. For example, two manufacturers producing similar goods, like canned sardines, might price their products differently due to variations in ingredient costs, production efficiency, or brand positioning. Within the Wholesale Level: Wholesalers who buy in bulk from manufacturers and sell to retailers often compete on bulk pricing, payment terms, and delivery schedules. Pricing can vary significantly between wholesalers due to differences in operating expenses, supply chain efficiency, or negotiation power with manufacturers. Within the Retail Level: Retailers compete by setting prices attractive to consumers, often using promotional discounts, loyalty rewards, or psychological pricing (like ₱199 instead of ₱200). Price competition at this level is intense because retailers are typically closest to the end consumer, making price sensitivity higher. 2. Pricing Strategies Within Channel Levels Different strategies are employed to attract customers and gain a competitive edge within each level: Cost-Plus Pricing: Many businesses within a level, especially wholesalers and retailers, use cost-plus pricing, adding a fixed markup to the cost of goods. For example, if a retailer buys an item at ₱50 from a wholesaler, they may add a 50% markup, selling it at ₱75. Competitive Pricing: Businesses often set prices based on what their competitors charge, especially in highly competitive markets. Retailers, for example, may price-match other stores to attract consumers. Promotional Pricing: Temporary discounts or promotions are common, particularly among retailers. For instance, a retailer might offer a “Buy One, Get One” promotion on a product to increase sales and attract more customers. Volume-Based Discounts: Wholesalers frequently use volume-based discounts, incentivizing bulk purchases. For example, a wholesaler might charge ₱10 per unit for an order of 500 units but reduce the price to ₱8 per unit for orders of 1,000 or more. 3. Public Policy Impact on Pricing Within Channel Levels Public policies influence pricing practices within each level to ensure fair competition, prevent exploitation, and protect consumer rights: Anti-Collusion Laws: Collusion—where businesses agree to set high prices collectively—is illegal, as it harms consumers by reducing competitive pricing. The Philippine Competition Act and similar regulations prevent manufacturers, wholesalers, or retailers from engaging in price-fixing, which would reduce consumer choice and drive up prices unfairly. Consumer Protection Regulations: The Department of Trade and Industry (DTI) enforces policies to prevent deceptive pricing practices, especially at the retail level. This includes rules against misleading discounts or "hidden fees" that inflate final prices. Suggested Retail Prices (SRP): For essential or high-demand items, the government often suggests retail prices, ensuring consumers aren’t overcharged. For instance, products like rice, canned goods, and other necessities have SRPs to prevent retailers from taking advantage of market demand or shortages. Price Transparency Requirements: Policies require clear pricing displays, especially in retail, so consumers know the full cost of products. This includes showing taxes, added charges, or hidden fees, making it easier for consumers to compare and make informed choices. 4. Examples of Pricing Within Channel Levels Retail Level Example: Two supermarkets compete on pricing for basic goods like eggs and milk. Supermarket A might run promotions on weekends, while Supermarket B offers loyalty discounts. Policies by the DTI ensure that these promotions are genuine and advertised transparently, so consumers aren't misled. Wholesale Level Example: Two wholesalers selling bulk cooking oil to retailers might price differently based on bulk discount structures. Wholesaler A offers a lower price per liter for orders over 1,000 liters, while Wholesaler B allows longer payment terms instead of discounts. Policies prevent these wholesalers from collaborating to set minimum prices, fostering a competitive market that benefits retailers. Manufacturing Level Example: Two soap manufacturers might set different prices based on production costs and brand positioning. Manufacturer A uses cost-effective ingredients and sells at a lower price, while Manufacturer B uses premium ingredients and prices higher to appeal to a different segment. Public policy ensures these manufacturers cannot collude on prices or limit market access, encouraging variety and competitive options for wholesalers and retailers. 5. Consumer Impact of Pricing Within Channel Levels Increased Choices and Competitive Pricing: Policies that promote competition within levels ensure that consumers benefit from better prices and more options. For example, when retailers compete on price for the same products, consumers can choose the most affordable option. Transparency and Trust: Requirements for clear pricing and truthful promotions protect consumers from deceptive practices, particularly at the retail level. Transparent pricing allows consumers to make informed decisions without hidden costs or misleading discounts. 6. Challenges of Pricing Within Channel Levels Price Wars: Intense competition, especially at the retail level, can lead to price wars where businesses continuously lower prices to attract customers. This can harm profitability and might force smaller businesses out of the market. Pressure on Margins: Within each level, businesses must balance competitive pricing with sustainable margins. For example, wholesalers might feel pressure to reduce prices to keep retailers interested, which could strain profitability. Policy Compliance Costs: Implementing pricing policies like SRP or full price transparency can add operational costs for retailers and wholesalers, though these policies ultimately aim to benefit consumers. In summary, pricing within channel levels involves the competitive pricing practices businesses use within the same distribution stage, governed by public policies that promote fairness, transparency, and consumer protection. These dynamics ensure that businesses within each level remain competitive while adhering to regulatory standards that benefit consumers. PRICING ACROSS CHANNEL LEVELS The Robinson-Patman Act seeks to prevent unfair price discrimination by ensuring that sellers offer the same price terms to customers at a given level of trade. The Clayton Act as amended by the Robinson-Patman Act prohibits price discrimination, the practice of charging different prices to different buyers for goods of like grade and quality. However, not all price differences are illegal; only those that substantially lessen competition or create a monopoly are deemed unlawful. Moreover, goods is narrowly defined and do not include discrimination in services. A unique feature of the Robinson-Patman Act is that it allows price differentials to different customers under the following conditions: 1. When price differences charged to different customers do not exceed the differences in the cost of manufacture, sale, or delivery resulting from differing methods or quantities in which such goods are sold or delivered to buyers. This condition is called the cost justification defense. 2. When price differences result from changing market conditions, avoid obsolescence of seasonal merchandise, including perishables, or closing out sales. 3. When price differences are quoted to selected buyers in good faith to meet competitors‘ prices and are not intended to injure competition. This condition is called the meet-the competition defense. For example, every retailer is entitled to the same price terms from a given manufacturer, whether the retailer is Sears or your local bicycle shop. However, price discrimination is allowed if the seller can prove that its costs are different when selling to different retailers, for example, that it costs less per unit to sell a large volume of bicycles to Sears than to sell a few bicycles to the local dealer. The seller can also discriminate against its pricing if the seller manufactures different qualities of the same product for different retailers. The seller must prove that these differences are proportional. Price differentials may also be used to ―match competition in ―good faith, provided the price discrimination is temporary, localized, and defensive rather than offensive. The Robinson-Patman Act also covers promotional allowances. To legally offer promotional allowances to buyers, the seller must do so on a proportionally equal basis to all buyers distributing the seller‘s products. In general, the rule of reason applies frequently in price discrimination disputes and is often applied to cases involving firms that use dynamic pricing policies. Laws also prohibit retail (or resale) price maintenance; a manufacturer cannot require dealers to charge a specified retail price for its product. Although the seller can propose a manufacturer‘s suggested retail price to dealers, it cannot refuse to sell to a dealer that takes independent pricing action nor can it punish the dealer by shipping late or denying advertising allowances. For example, the Florida attorney general‘s office investigated Nike for allegedly fixing the retail price of its shoes and clothing. It was concerned that Nike might be withholding items from retailers who were not selling its most expensive shoes at prices the company considered suitable Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers. This might involve bogus reference or comparison prices, as when a retailer sets artificially high ―regular prices and then announces ―sale prices close to its previous everyday prices. For example, Overstock.com recently came under scrutiny for inaccurately listing manufacturer ‘s suggested retail prices, often quoting them higher than the actual price. Such comparison pricing is widespread Comparison pricing claims are legal if they are truthful. Deceptive pricing is outlawed by the Federal Trade Commission Act. The FTC monitors such practices and has published a regulation titled ―Guides against Deceptive Pricing to help businesspeople avoid a charge of deception. The five most common deceptive pricing practices are described in Figure 7.2. Figure 7.2 Deceptive Pricing Practices As you read about these practices it should be clear that laws cannot be passed and enforced to protect consumers and competitors against all these practices. So, it is essential to rely on the ethical standards of those making and publicizing pricing decisions. An often-used pricing practice is to promote products and services for free great prices! The meaning of ―free is obvious. Other deceptive pricing issues include scanner fraud and price confusion. The widespread use of scanner-based computer checkouts has led to increasing complaints of retailers overcharging their customers. Most of these overcharges result from poor management—from a failure to enter current or sale prices into the system. Other cases, however, involve intentional overcharges. Many federal and state statutes regulate against deceptive pricing practices. For example, the Automobile Information Disclosure Act requires automakers to attach a statement on new vehicle windows stating the manufacturer ‘s suggested retail price, the prices of optional equipment, and the dealer ‘s transportation charges. However, reputable sellers go beyond what is required by law. Treating customers fairly and making certain that they fully understand prices and pricing terms is an important part of building strong and lasting customer relationships. PRICING ACROSS CHANNEL LEVELS IN THE PHILIPPINES Pricing across channel levels is a critical concept in supply chain management, as it explains how prices evolve from the point of production to the point of sale. Here’s a more detailed breakdown of how pricing changes across channel levels, as well as the public policies that impact these changes. 1. Channel Levels in the Distribution Chain Manufacturers: They create or produce the product and set the initial price, often called the base price or ex-factory price. This price considers production costs (materials, labor, overhead) and a profit margin. Manufacturers often offer bulk discounts to wholesalers, who buy in large volumes. Wholesalers: Wholesalers purchase goods from manufacturers at discounted bulk rates. They mark up the product to cover distribution costs, such as warehousing and transportation, and add their own profit margin before selling to retailers. Retailers: Retailers buy from wholesalers and mark up products to cover expenses like rent, utilities, staff wages, and other operational costs. They then sell directly to consumers at the retail price, which includes all preceding markups. 2. Factors Influencing Pricing Across Channel Levels Several factors impact how prices are set at each level: Cost Structures: Each channel level has unique cost structures that affect pricing. For instance, wholesalers must account for storage and transportation costs, while retailers focus on in-store operating costs. Demand and Market Dynamics: Demand affects pricing across levels, especially in competitive markets. Higher consumer demand may allow retailers to increase prices, while low demand might pressure all levels to offer discounts or lower margins. Bulk Purchasing and Volume Discounts: Wholesalers and large retailers may negotiate better prices from manufacturers based on purchase volume. Bulk purchasing reduces per-unit costs, which can lead to lower prices for end consumers. Strategic Markups: Each channel level sets markups strategically to maximize profitability while remaining competitive. For instance, retailers often use psychological pricing strategies (like pricing at ₱99 instead of ₱100) to make prices more appealing. 3. Public Policies Affecting Pricing Across Channel Levels Price Regulations: Governments, like the Philippine Department of Trade and Industry (DTI), can impose price controls on essential goods. These controls ensure that products like food staples, medicine, and fuel remain affordable despite changes in costs at various channel levels. Anti-Competitive Practices: The Philippine Competition Act restricts monopolistic practices and price manipulation. For instance, it prevents wholesalers or retailers from artificially inflating prices through collusion, ensuring that pricing across levels remains competitive. Transparency Laws: Policies like the Consumer Act of the Philippines require transparent pricing across levels. This includes disclosing all additional costs (e.g., VAT, delivery fees) that might affect the final price. Transparent pricing helps consumers understand why they’re paying a certain amount and ensures consistency in pricing across retailers and online platforms. Trade Policies and Tariffs: Import tariffs can increase the base cost of goods, especially for items not manufactured locally, influencing pricing across all channel levels. Reductions in tariffs, conversely, can help lower prices across the board, potentially benefiting consumers. 4. Example of Pricing Across Channel Levels Let’s look at a simplified example of how pricing might change for a common consumer good, such as a bottle of shampoo: Manufacturer: The manufacturer sets an ex-factory price of ₱50 for a bottle of shampoo, covering production costs and a profit margin. Wholesaler: The wholesaler purchases the bottle from the manufacturer at ₱50 and marks it up by 20% to cover warehousing and transportation, resulting in a wholesale price of ₱60. Retailer: The retailer buys the bottle from the wholesaler at ₱60 and applies a 50% markup to cover operating costs and make a profit, setting a final retail price of ₱90 for consumers. In this example, the price moves from ₱50 to ₱90 across channel levels, reflecting the added costs and markups by the wholesaler and retailer. Public policy might regulate this process by limiting markups on essential goods or requiring transparency in the pricing structure. 5. Implications for Consumers and Businesses Consumers: Understanding pricing across channel levels helps consumers be more informed about what they’re paying for. Policies that regulate excessive markups or ensure transparency protect consumers from unfair price hikes. Businesses: For manufacturers, wholesalers, and retailers, competitive pricing across levels helps them maintain market share and profitability. Effective pricing strategies consider not only costs and desired profit but also compliance with public policies. 6. Public Policy Goals in Pricing Across Channel Levels Preventing Price Gouging: Policies protect consumers from excessive pricing during high-demand periods, like calamities or shortages. Encouraging Fair Competition: Laws that limit monopolistic practices or excessive markups foster a competitive market, benefiting consumers with better prices. Ensuring Affordability: By regulating pricing practices, especially for essential goods, public policies aim to keep basic needs affordable. Overall, pricing across channel levels shows how each stage in the supply chain adds value and cost, and how public policy works to balance fair business practices with consumer protection.