What Is Dual Pricing?
Dual pricing is the practice of setting different prices in different markets for the same product or service. This tactic may be used by a business for a variety of reasons, but it is most often an aggressive move to take market share away from competitors.
Dual pricing is similar to price discrimination.
- Dual pricing is most often an aggressive tactic used by a manufacturer to take market share away from a competitor.
- In some cases, dual pricing is necessary to offset the additional costs of doing business in a foreign market.
- Dual pricing is illegal only when it can be proved that a manufacturer set prices unrealistically low for the purpose of unfairly driving out competition.
Understanding Dual Pricing
There are a number of reasons why a company might decide to set different price points for its products in different markets. An aggressive competitor may lower its product price dramatically to make a splash in a new market. The long-term intent is to drive out competitors. The product price will return to its normal level once the competitors have been priced out of the market. This practice is illegal under certain circumstances.
At the same time, an adverse currency exchange rate or high shipping costs may force a price increase in a certain market. The seller must raise prices to offset its costs of doing business there. Distribution costs may also vary among markets. A company may use a distributor in some markets, while others rely on direct sales to consumers. Different prices may be used to even out the costs of doing business in different markets.
Dual pricing is illegal if it is done with the intent of dumping goods in a foreign market. The distinction is hard to prove, though.
Dual pricing may be demand-based. For example, an airline may offer one price to an early customer and another, higher price to someone booking at the last minute. Additionally, businesses in many developing nations that rely on tourism employ dual pricing strategies. Local residents get lower prices for goods and services while tourists pay more. In many cases, foreigners may not know they're being charged a higher price. Those in the know can negotiate.
The price difference may also be imposed by the retailer. An upscale boutique might charge more for a fancy bar of soap than a dollar store.
Dual pricing is a legitimate pricing option in some industries. However, it can be illegal if it is done with the intent of dumping goods in a foreign market.
The practice of product dumping is most often seen in international trade. In such cases, a manufacturer enters a foreign market with unrealistically low, even below-cost, product prices. This may be permitted or even subsidized by the nation in which the manufacturer operates. The purpose is to drive other competitors out of the business in order to dominate a product niche or even an entire industry.
Dumping is banned under most trade agreements. However, the practice is difficult to differentiate from dual pricing. Enforcement has been difficult and expensive.