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

METHODS OF DETERMINING FAIR PRICE

1. 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 capitalb. 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 SYSTEMRequirements 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 PRACTICES1. 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

PRICING PRACTICES3. 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

FACTORS TO CONSIDER IN ESTABLISHING FAIR WAGES

1. DUTIES AND RESPONSIBILITIES AND THE REQUIREMENTS OF THE JOB

2. LAWS AND REGULATIONS\3. COST OF LIVING4. GOING RATE OR

COMMUNITY RATE5. FINANCIAL CONDITION OF

THE COMPANY