Fair Business Practices: Advertising and Pricing


When you own your own business, the drive to make it succeed is strong. You look for every opportunity to outshine the competition. But in your haste to make it to the top of the market, you have to make sure you’re operating within the law.

The Federal Trade Commission is the federal agency charged with enforcing fair business practices. The federal government enforces a set of laws as outlined in the Federal Trade Commission Act, or FTCA, (FTCA) to protect consumers. These laws make sure that businesses don’t use unfair practices to either edge out their competition or conspire to drive up prices.  

The laws governing fair business practices generally fit into one of two categories: advertising laws and pricing laws.

Unfair Advertising Practices
If you sell products or services, you must make sure your advertisements are fair. Your advertisements cannot contain deceptive statements or omit necessary statements. For example, you cannot claim the service you provide is free in an advertisement if you then charge hidden fees. Additionally, you cannot make claims about your product or service if you don’t have evidence to back them up. Saying, “Four out of five doctors recommend our product,” for example, would be considered illegal if you did not have a survey to back up that claim.

An advertisement may also be considered unfair if it fails to spell out potential injuries to the consumer that are not outweighed by the benefit. That’s why commercials for prescription drugs typically include a disclaimer about potential side effects. 

If the FTC determines your advertisements violate the FTCA, you could face some stiff repercussions. First, you’ll probably get a cease and desist order to stop running the ads. If you comply, you may not have to pay a fine. If you fail to remove the ad or run unfair ads in the future you could end up paying a fine of $11,000 per day, per ad.  There could also be civil penalties, and business owners can be forced to run additional ads to correct any false statements in previous ads.

Unfair Pricing Practices
When you think of the Sherman Antitrust Act you usually think of big corporations taking advantage of small businesses, but antitrust laws apply to businesses of all sizes. Antitrust laws are designed to protect the consumer from any conspiracy to tamper with the natural flow of trade in the market.

Price fixing is when two or more parties agree to manipulate the prices offered to the public. This can be done vertically or horizontally. An example of vertical price fixing would be if your wholesale business would only sell to retailers who adopted your price structure. An example of horizontal price fixing would be if you made an agreement with a competitor to set a minimum price for a product. That price would undoubtedly be higher than it would be in a free market, so it would be unfair to the consumer.

Price discrimination, which is selling goods at different prices to different businesses to restrain competition, is also illegal. So is making agreements to divide up customers or markets between competitors or to boycott another competitor or supplier. One business cannot also acquire all of its competitors to control a given market. This is called monopolization. All of these are violations of antitrust laws.

If your business is found to have violated antitrust laws, you could face hefty civil fines and criminal prosecution. As an individual, you could be fined up to $1 million criminally and receive up to 10 years in prison.



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