Very recently some of my friends, including myself, were debating on the topic of the prices of the expensive smart phones available in the market and one of the common conclusions being drawn was that the prices can be labelled as “obscene” to a common man. That led me to think what defines this definition of obscene pricing and whether the corporations have the right to go for this kind of obscene prices of products.
The basic philosophy of corporations is not only to make profits but to maximize the same at a minimum cost. This is because this will allow the companies to grow, make more profit and by that measure make the share holders happy. Hence in a free economy, any organisation has the right to price any of their products in a manner that will help then to make more profit and I personally believe that is not a crime. If they price a product insanely high resulting in people not buying it just because they don’t see the value in buying that product at that price, then obviously the company will not generate that amount of sales to create any profit and will soon be out of business. While pricing, they might definitely target a particular customer category which might make the other customer categories feel that the same product is “too costly” for them to afford it.
However if the economy is state controlled, then the scenario might be current as the government will feel the necessity to control the prices of the various products and hence to the consumer, they will feel that they are getting the prices as dictated by a bigger and powerful body. Obviously this will lead to the lack of options to the consumer and hence in the longer run the people living in that country will feel that they are deprived of the fundamental right of having a self determination of choosing a right product for his use and to his own liking. We have seen that happening in several countries in the 20th century.
In a free economy if a business is so lucrative that a company can afford to maintain an “obscene” pricing, then either the company has some unique technology to invent an unique product which no other company has; or they are the first entrants with that product in that market. But it will be a matter of time when the prices will be coming down with competition coming in to take a slice of that thriving market. The best example we have seen in recent years in India is in the telecommunication sector wherein the prices of hardware as well as services 10 years ago was quite “oscene” and only a few selected people could afford that price. But now you will find a mobile in the hands of every person walking in the street. This is what a free economy can do to an obscene pricing.
Inventions or “first of a kind” products can afford to keep a very high price in the beginning, but the balancing power of a free economy will force the system to come to a price equilibrium. Till that comes, there might be instances when the prices looks “obscene” – but it will be the force of the competition which will bring down the insane prices to sanity !