The law has an impact on pricing in a number of ways, the law states that identical products in the market must have a single price. This means that a product produced by a firm should be sold in the market at a set price and the products should not be sold in the market at the same price, therefore managers should therefore take into consideration this law.
Another law that affects pricing is the predatory pricing law, in the market some firms may decide to sell products at very low prices, these low prices forces other firms to exit the industry and also prevent other firms from entering the market. Due to this barrier created by low pricing a monopoly may emerge and therefore this law protects predatory pricing. Therefore managers should be aware of this low and not sell products at very low prices.
In the US another law that affect pricing is the Sherman act that was passed in the year 1870, this act states that a monopoly that emerges through merit is legal, however acts that tend to create a monopoly are illegal, this act protects competition whereby firms are not supposed to engage in acts that enable them to achieve a monopoly status. This act also protects the market by enforcing a law that protects from over pricing. Therefore managers in imperfect competitive markets should not over price products or engage in acts that will tend to create imperfect competition in the market.
Discounted cash flow (DCF) is a valuation method that is used in determining the present value of an investment, the future cash flows of an investment are discounted at an estimated rate and the present value of the investment determined. The present value of products produced in the research and development cannot be determined given that it is not easy to determine the products that will be produced.
The product costs in the research and development cannot be estimated and therefore the present value cannot be determined, also the time duration that a new product will take to be produced cannot be estimated, for this reason it is not easy to determine the present value of a project, however historical costs incurred in similar products in research and development can be used to estimate the expected costs to be incurred.
For this reason therefore it is impossible to use the DCF method in research and development, this is because costs cannot be estimated, also it is not easy to estimate the time period of the project. For this reason therefore the DCF method cannot be used in research and development projects.
Aswath, D. (1996) Investment Valuation: Tools and Techniques, N.Y.: Wiley and Sons press.
Easterbrook, F. (1981).Predatory Strategies and Counterstrategies, University of Chicago Law Review, Vol. 48
Robert Bork (1993) the Antitrust Paradox: A Policy at War with Itself, N.Y.: The Free Press
Synder, E. and Kauper, T. (1991) Misuses of the Antitrust Laws: The Competitor Plaintiff, Michigan Law Review, Vol. 90
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