There are criteria for adequate pricing.
In the previous post, we exposed the price categories; in this one, we will comment on their primary limits and rules, which are:
- Prices for the private sector in the internal market.
As long as the restrictions imposed by the consumer protection and antitrust legislation are respected, pricing for the private sector in the internal market is at the offerer’s discretion.
The abovementioned laws deal with consumer rights and illegal practices such as price collusion, predatory pricing, fixed resale prices, misleading prices, price discrimination, and dumping.
- Prices for government entities.
In most countries, provided that the prices for government entities follow the respective rules, they are of the offerer free will.
For example, in North America, the US Federal Acquisition Regulation defines the government contracting types as fixed-price, cost-reimbursement, incentive contract, time-and-materials, labor-hour contract, indefinite-delivery contract, and letter contract.
- Prices for export.
Regarding export pricing, whenever it meets the requirements of the exporting country rules, like the US Export Administration Regulations, it is up to the seller to fix them.
- Prices for domestic transfers.
Typically, there are no rules for pricing domestic transfers.
The main criteria used to set these prices are (a) based on market price, (b) based on operating cost, and (c) negotiated.
- Prices for international transfers.
International transfers of products and services move revenues, costs, and taxes worldwide, generating conflicts of interest between senders, recipients, and tax authorities.
According to the Organization for Economic Cooperation and Development (OECD), the best way to solve the conflict between suppliers, buyers, and tax inspection bodies is to adopt the parties’ convenience policy, also known as the Arm’s Length Principle.
C. L. Eckhard, author of Pricing in Agribusiness: setting and managing prices for better sales margins.
Claudio Luiz Eckhard is a former professor, business consultant, and author of the books “Ajustando o Rumo”[Adjusting the Business Course], “Gestão pela Margem”[Management by Margin], “A Empresa Saudável”[The Healthy Company], and “Pricing no Agribusiness”[Pricing in Agribusiness].
