A national retail chain has signs throughout its stores that say: "Sale! 50% off our regular price!" Journalists investigate and discover that the company has never sold any merchandise at what it calls its regular price. What type of activity is this firm engaging in?

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BlackTom AI · Accepted Answer

The scenario presents a question about a retail advertising claim and what it indicates about the firm’s pricing practice.
Option 1: Loss-leader pricing. This is a strategy where certain items are sold at a very low price to attract customers, with the goal of boosting overall store traffic and cross-sales. The key element is using low prices to generate traffic, not misrepresenting regular prices. In this case, the issue is deception about what counts as a regular price, not the tactic of using a loss leader to draw customers.
Option 2: Deceptive reference pricing. This correctly captures the core problem: the retailer advertises "50% off our regular price" even though there has never been a sale at that regular price. The reference price is used as a basis for the discount, but it is false or misleading, making the advertisement deceptive under consumer protection and advertising ethics.
Option 3: Price skimming. This practice involves starting with a high price and gradually lowering it over time to capture different segments. It does not involve misrepresenting a regular price, but rather a pricing ladder strategy. Therefore, it does not fit the description of deception about regular pricing.
Option 4: Predatory pricing. This strategy uses briefly set very low prices to push competitors out of the market, with the intent of then raising prices. The given scenario does not involve attempting to eliminate competition through below-cost pricing, but rather misrepresenting what the regular price was, so this option is not applicable here.
In summary, the core issue is the misrepresentation of a reference price in advertising, which aligns with deceptive reference pricing, while the other options describe legitimate or different deceptive/competitive pricing strategies that do not match the scenario. The reasoning highlights why the deceptive reference pricing label is the appropriate classification for the described practice.

A national retail chain has signs throughout its stores that say: "Sale! 50% off our regular price!" Journalists investigate and discover that the company has never sold any merchandise at what it calls its regular price. What type of activity is this firm engaging in?

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