In the world of trade today, there is stiff competition from the development of new ideas and technology towards the established businesses. In the wake of innovation, many new companies are entering the market with new products to disrupt the status quo. Some well-established corporations are feeling the pressure from developing ones and thus resort to dubious ways of manipulation and competition. One of the strategies the more prominent firms use is “loss leader pricing” which involves the selling of products in prices below their original ones to obtain a large customer flow ( In & Wright, 2014) . In the ethical questions at the end of chapter 6 of Rothaermel’s book, there is a case of Proctor and Gamble using loss leader pricing to force a new entrant, Method, out of the detergent business. They have noticed that they lose market base to the start-up.
To begin with, this strategy is unethical as it involves the predation of another firm and forcing it out of the market. Under the antitrust laws, there is a fine line between the loss leader pricing and predatory pricing and the difference is the motive ( Edlin et al., 2015) . While the former strategy seeks to lower the prices of the products to stimulate sales of other items that are offered at the same market price, the latter is a misuse of the market power of established firms. In some scenarios, there are the goods that are high-profit margin and are sold at regular prices. Under the loss leader strategy, the customer may end up buying the other items at the same time. The business thus does not suffer an overall net loss during the campaign period. Now when such a move aims to damage the competitor or force them out, it is selfish and unethical. Big firms like P&G would like to monopolize the products they deal. The predatory pricing, the company wishes Method to make insignificant sales while itself makes losses for an extended period. After the competitor has crumbled, the big firm now makes their way back to the prices that they command. In many instances, the loss leader pricing is applied to consumables which have a shorter shelf life like milk, eggs, and many more. P&G applies this strategy to detergents which are not perishables. Thus, the approach that the company uses has tripped over from loss leader to predatory pricing. When P&G seeks to lower the prices of their products for the sake of kicking Method out of the market, they take advantage of their market power for the damage of the other company (Kaplow, 2017). However, the pick between the loss leader strategy and the predatory pricing is complicated as the former is the same strategy used by the retail stores to increase customer traffic and to survive in the market.
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The Bible verse of interest here is Philippians 2:3-4 (English Standard Version) which says “Do nothing out of rivalry or conceit, but in humility consider others as more important than your-selves. Everyone should look out not only for his own interests, but also for the interests of others.” While putting into caution the concept of callous rivalry, the verse talks of the conceit which makes one consider themselves as more important than others. When competing against each other, there exists an atmosphere of hatred among the companies and thus a possibility of actions that only favor the interests of one side over the other. The verse also brings to life the case of God’s kingdom and that of Satan. In the Kingdom of God, everybody acts in the interest of others and offers help to those who need it the most with love. On the other hand, the Satan’s kingdom involves manipulations, predations, and competitions. When competition begins, the sides that want to manipulate sees the other as an enemy that should be thrashed before they strike. The Bible in many cases, however, encourages us to love one another and pray for our enemies.
As far as the pricing strategy is concerned, P&G is not taking into consideration the principles of fair business as their main aim is to have Method kicked out. This is what the Bible calls conceit as Proctor and Gamble have only its interest at heart. They see Method as an enemy or an impediment to their success and control of the market. They thus offer to make some little losses but know the competitor out of the market. Predatory pricing is a strategy of the powerful and corrupt people to unfairly compete against, and take advantage of and destroy the people and businesses that are less well of or poor. When the fair market is eliminated, the field is left for the monopolistic control of the influential people and their companies, and thus the prices shoot to higher as they seek to recover the losses they made during the campaign ( Crane, 2015) . The reason behind the promotion is that they fear their products may not have competitive advantage alongside those of the new start-up ( Li et al., 2013) . Their products are often of poor quality and thus would need replacement. The case of P&G and Method makes the multinationals to profit at the expense of the honest person. In most of the verses, the Bible talks about the oppression of the poor and how Christians should abstain from looking down upon them. In this case, Proctor and Gamble are acting in a manner suggesting they need to oppress the “poor” Method as it is a startup. In a comparative perspective, P&G has a well-established market base and therefore is equal to the rich person in the society.
References
Crane, D. A. (2015). Conditional pricing and monopolization: a reflection on the state of play.
Edlin, A., Hemphill, S., & Kaplow, L. (2015). Professors Update 2015, Antitrust Analysis.
In, Y., & Wright, J. (2014). Loss-leader pricing and upgrades: Economics Letters , 122 (1), 19-22.
Kaplow, L. (2017). Recoupment and Predatory Pricing Analysis.
Li, X., Gu, B., & Liu, H. (2013). Price dispersion and loss-leader pricing: Evidence from the online book industry. Management Science , 59 (6), 1290-1308.
