Government+Influence+on+Prices

Government plays a role only when laws or regulations are needed to prevent unfair competition or to encourage attivities that benefit society. When governments become involved in the economy they often have an effect on prices. The two most important ways governments influence prices are by regulating compteition and taxation.

Regulating Competition
Whenever one business is large enough to control a market, or when a few businesses cooperate to take advantage of smaller businesses or consumers, the government will regulate those businesses. Several years ago, the federal government believed that AT & T had too much control of the telephone communications industry. A court ruling requird that the company divide itself into several smaller indpendent companies. This allowed other businesses, such and Verizon and U. S. Cellular, a better chance to offer competing telephone services.

Another example of government regulations is the control of public-service monopolies, such as cable television and electrical and gas services. The government allows one company exclusive rights to serve a city because the monopoly is more efficient than if several companies each had their own electric, gas, and cable lines into every neighborhood. However, when the government grants a monopoly, it usually maintains control over the level of service provided and the prices charged by the company.

The government also wants to encourage the development of new products and services so consumers have additional choices to satisfy their needs. One way to help businesses is to protect new products granted to inventors of unique products for a period of 17 years. During that time, no other business can market exactly the same thing unless permission is granted by the inventor.

Taxation
Taxes are another way governments affect the products and services marketed, the prices paid, and the level of competition. an increase in the tax on a product makes it less attractive to consumers and reduces the level os sales. Taxes on products collect revenues for the governments. In the same way, import taxes increase the price of foreign products, making competing products produced in the country a better value for consumers.

Occasionally, the government wants to encourage a particular type of business or the development of certain products or services. Legislators use a reduction in taxes for that purpose.

Regulation of Prices
Some of the most important areas regulated by laws include:
 * Price fixing: Competing companies at the same level in a channel of distribution cannot cooperate in establishing prices.
 * Price discrimination: Businesses cannot discriminate in the prices they charge to other businesses in their channel of distribution. A manufacturer must offer equivalent prices, discounts, and quantities to all wholesalers or retailers rather than giving an unfair advantage to one or a few companies.
 * Price advertising: Businesses cannot mislead conumers through the advertising of prices. Examples of misleading advertising include using phony list prices, incorrect comparisons with competitors' prices, or continuous promotion of a sale price. Companiers must clerly communicate the terms of credit offered to customers.
 * Bait-and-switch advertising: Companiers cannot lure customers into a store with offers of extremely low prices and then tell the customer the low-priced product is not available or is of inferior quality.
 * Unit pricing: Many products that are sold in varying quantities or package sizes must carry a label tha lists the price for a busic unit of measurement to enable cosumers to make price comparisons.