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CASE 7-1: Pricing Competition Hitesh Nazami owns and operates a hardware store in a community of 50,000 people. The nearest town is at least 25 miles away, but there are two competitors in the area, one of which is a new “big box” home store. All usually run weekly advertisements. Hitesh has noticed that the big-box store is selling many brand-name products at prices lower than he can buy them for from his suppliers. This has hurt Hitesh’s overall sales. Recently a customer Hitesh had never seen before came into the store to replace a broken tool. “I certainly hope you carry Weaver tools,” the customer said. “The other stores in town, including that new big-box store, don’t carry the Weaver brand.” “Sure, we carry Weaver,” answered Hitesh. “It’s one of my best lines.” The customer looked happy and relieved, and went to his truck to get the old tool he wanted to replace. While the customer was outside, Hitesh had a chance to think about what the customer had said. Now Hitesh knew why the Weaver brand was so popular in his store. He was happy that the big-box store didn’t carry the Weaver brand. As a result, he decided to raise prices on Weaver tools by the next morning. Also, he could promote the fact that he was the only local supplier of Weaver tools in next week’s advertisements. A smile crossed Hitesh’s face as the customer returned. “Here’s the tool,” said the customer. “I hope you can replace it. As you can see, it’s quite different from the other brands.” “I can see that it’s different,” Hitesh responded. “You’re lucky to get it at this low price. The price will be going up in the very near future.”

THINK CRITICALLY 1. Is the big-box store practicing illegal price competition? Explain your answer. If it is, what federal act is it violating? 2. If the big-box store is not practicing illegal price competition, how can it sell at such low prices? 3. Does Hitesh have a monopoly on Weaver tools in his community? 4. If Hitesh raises his prices by very much, what might happen? What could the big-box store do? 5. Is raising the price suddenly (and for the reason given) an unfair business practice? Discuss your answer. 6. Could Hitesh advertise that he has an exclusive contract with Weaver even though he doesn’t?

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