This time of year the loss leader pricing model is a critical pricing tactic utilized by retailers. As discussed in the Setting Price: Part 2 tutorial, loss leader pricing is a form of promotional pricing that principally is used to attract customers to retail stores. Under this approach, retailers intentionally sell products at prices that are below the cost they pay suppliers (e.g., manufacturers) for obtaining the product. In other words, they lose money on each item they sell. The idea is that, while they lose money on this product, they will easily recoup their loss by selling other products that are profitable.
While a useful pricing tactic, some U.S. states have viewed this as a form of predatory pricing, where the low price is not necessarily intended to attract customers, but is designed to drive competitors off the shelf, or possibly, out of business. One state that did not appreciate loss leader pricing is Oklahoma, which not only considered to be illegal but, back in the 1940s they also said retailers had to sell a product at a price that is 6 percent or more above its cost.
Now, this has changed. According to this story, after 72 years retailers are free to engage in loss leader pricing in the state of Oklahoma. At least for some products. There are still limitations when it comes to drugs, gasoline and groceries. Obviously for retailers, this comes just in time for their Black Friday specials.
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