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Disclosing ‘true normal price’ recommended to protect consumers from deceptive pricing

Advertised reference prices — even those exaggerated to unrealistic levels — have significant impact on consumer decision-making.

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Fifty years ago, the US Federal Trade Commission (FTC) stopped enforcing deceptive pricing regulations, assuming that competition would keep retailers honest. Since then, competition has increased significantly — yet the practice of posting false, inflated comparison prices alongside sale prices has continued unchecked.

Think of an advertisement from a furniture store that touts a $599 sale price for a couch as an $800 savings from a promoted regular price of $1,399. The problem is that the store may have never offered the couch for sale at the higher price.  

This practice, called “fictitious pricing,” is ubiquitous in the retail trade. One recent investigation tracked the prices of 25 major retailers and found that “most stores’ sale prices … are bogus discounts” because the listed regular price is seldom, if ever, the price charged for the products.

Competition and the Regulation of Fictitious Pricing” is published in the Journal of Marketing from Joe Urbany, professor of marketing at the University of Notre Dame’s Mendoza College of Business, along with Rick Staelin from Duke University and Donald Ngwe, a senior researcher at Microsoft.

The paper critically evaluates two assumptions underlying the FTC’s decision to halt deceptive pricing prosecution.

The first is that inflated reference prices are largely ignored by consumers, who focus primarily on the sale prices, leading to price competition that pushes selling prices lower and renders reference prices harmless.

However, dozens of empirical studies in marketing and psychology reveal that advertised reference prices — even those exaggerated to unrealistic levels — have significant impact on consumer decision-making. This is explained by the natural value that consumers place on getting a good deal, labeled “transaction utility” by Richard Thaler in his Nobel Prize-winning body of work. 

In contrast to the FTC’s second assumption that competition drives out economic incentives to cheat, a number of recent economic models show the opposite. Competition in fact increases the chance that a firm will offer noisy information in an attempt to shield itself by looking different to customers. As a result, deception is found to be more profitable as competition increases.

These are fundamental forces that encourage the use of fictitious pricing. They also explain why state-level regulatory efforts and even a growing number of class action lawsuits have done little to discourage the practice.  

“There are limits to enforcement by litigation,” Urbany said. “It allows only a relatively small number of meaningful actions in a given time period, leading to limited visibility and impact on widespread practice.”

The authors propose instead a disclosure solution in the form of requiring firms that use comparison prices in their sales promotion to additionally post the item’s true normal price (TNP). The TNP is the most frequently offered price for that product in a given period.

For example, let’s say a price-promoting furniture retailer actually offers the sofa for sale at $1,399 for the first two weeks in a quarter (making zero sales), and then advertises the sofa on sale at $599, promoting $800 in savings for the other 10 weeks. Under the TNP disclosure proposal, the retailer would need to post $599 as its true normal price for the product in any subsequent sales promotions that included statement of a “regular price.” 

Through a controlled experiment with 900 participants, the authors found that providing TNP information largely eliminates the effect of an advertised regular price, which otherwise significantly raises the chance a consumer will buy.

To gauge the likely response of firms to the TNP disclosure concept, the authors also interviewed a dozen senior retail executives, each with extensive experience in pricing.

“Our interviews revealed that some practitioners are very supportive of efforts to rein in what is perceived to be an ‘out-of-control’ promotional environment,” Urbany said. “At the same time, they and others offered more sobering insights about the realities of likely resistance to intervention.”

The paper concludes with conjectures about how TNP provision would motivate greater honesty in pricing, likely having an impact on average market prices, promotion frequencies and firm profits. Important research directions are highlighted. 

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Office owners or managers, take note: Increased risk of bullying in open-plan offices

In traditional open-plan offices it is easier to notice colleagues’ shortcomings and become irritated by them. If someone gets frustrated and takes it upon themselves to “do something about” a colleague’s behaviour, and there are no clear guidelines for handling such situations, there is a risk that it may escalate into bullying. Those who are subjected to bullying lack access to a private space for retreat. 

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Open-plan offices entail a clearly increased risk of workplace bullying compared with employees having their own office or sharing with just a few colleagues. This is shown in research from Linköping University, Sweden. 

“Increased bullying is a tangible negative consequence of how you choose to organise the workplace. It’s important to highlight this, as it hasn’t previously been examined,” says Michael Rosander, professor at the Division of Psychology at Linköping University.

Open-plan offices, where many employees share the same space, have become increasingly common. Employers often justify this development as a way to use premises more efficiently and to encourage creative interactions between employees. However, research has shown that open-plan offices do not promote health, job satisfaction or productivity.  

Until now, it has been unclear whether open-plan offices also affect the risk of bullying and employees’ motivation to look for another job. Through surveys of more than 3,300 randomly selected individuals in employment in Sweden, Michael Rosander has now provided an answer. The results are published in the journal Occupational Health Science. 

Thirty per cent of those with some form of office-based work reported that they worked in a traditional open-plan office with no access to private space. Thirteen per cent worked in so-called activity-based offices, where employees spend part of their time in an open-plan environment but also have access to designated rooms for tasks requiring peace and quiet. The remainder had their own office or shared one with only a few colleagues.

For traditional open-plan offices, the survey responses showed a clearly increased risk of bullying compared with those who had their own office or shared an office with only a few colleagues. The difference remained regardless of factors such as personality traits and the extent of remote working. This suggests that the problems are indeed caused by the work environment in the office.  

The researchers’ explanation is that in traditional open-plan offices it is easier to notice colleagues’ shortcomings and become irritated by them. If someone gets frustrated and takes it upon themselves to “do something about” a colleague’s behaviour, and there are no clear guidelines for handling such situations, there is a risk that it may escalate into bullying. Those who are subjected to bullying lack access to a private space for retreat. 

Activity-based open-plan offices, by contrast, showed no increased risk of bullying, likely due to the availability of private spaces. However, in both types of open-plan office, employees were more likely to consider changing jobs. One possible explanation is that activity-based offices also involve more distractions, according to Michael Rosander.

For employers who have introduced, or are planning to introduce, open-plan offices, there are some lessons to be learned. One is to be prepared to deal with irritation and conflicts before they escalate. Another is the importance of providing rooms where employees can work undisturbed. Placing individuals with similar needs and tasks near one another may also reduce the risk of disruption.

“Traditional open-plan offices are in themselves negative for the individual, for productivity, and make people more likely to leave their job. Social interaction also suffers. So it’s worth considering how to handle it,” says Michael Rosander.

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Long-serving CEOs may weaken innovation, study finds

Companies led by long-serving chief executives may become less innovative over time unless challenged by strong independent boards.

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A new study from the University of East London has found that companies led by long-serving chief executives may become less innovative over time unless challenged by strong independent boards.

The research examined 215 FTSE 350 companies over an 11-year period between 2010 and 2021. It explored how CEO tenure and independent directors influence a company’s “R&D knowledge stock”, which is the research, expertise and technological capability built through investment in innovation.

The study published in the journal Corporate Governance found that CEOs who remain in office for many years often become more cautious and less willing to back risky research and development projects. These companies were more likely to reduce investment in innovation and long-term technological growth.

Firms with higher numbers of independent directors were more likely to continue building innovation capacity with experienced CEOs and independent directors forming an effective partnership, to combine deep company knowledge with outside challenge.

However, both experienced CEOs and independent directors become more cautious and less willing to back risky research and development projects when the company fails to meet performance aspirations, suggesting that independent directors do not have stable risk preferences.

The findings suggest that innovation is shaped not only by technology and finance, but also by leadership culture and corporate governance structures.

Author Dr Igbekele Sunday Osinubi, of the Royal Docks School of Business and Law, said: “Long-serving CEOs can bring valuable experience and stability, but there is also a risk that leaders become too cautious or too attached to existing ways of thinking. Our findings show that independent directors play an important role in encouraging companies to continue investing in innovation, especially during difficult periods when firms may otherwise retreat from long-term research and development.”

He added: “This matters beyond individual companies. Innovation drives productivity, competitiveness and economic growth. The study highlights how governance structures can influence whether firms continue building the knowledge and technologies that shape future industries.”

The paper argues that regulators and policymakers should consider governance reforms and incentives that encourage long-term innovation strategies, particularly in firms led by long-serving executives. The findings may also influence how boards think about CEO succession planning, oversight and the balance between short-term financial pressures and long-term investment.

Osinubi’s research, “Long CEO tenure, independent directors and R&D knowledge stock: the moderating effect of performance shortfalls”, was published in the Corporate Governance: The International Journal of Business in Society

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Profit alone is a poor measure of success, study shows companies can look efficient while harming the planet

Firms that appear highly efficient at generating revenue can perform far worse when their environmental footprint are included in the calculation.  

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Companies celebrated for strong financial performance may actually be inefficient once their environmental impact is taken into account, according to new research from the University of Surrey. 

The study, published in the European Journal of Operational Research, shows that firms that appear highly efficient at generating revenue can perform far worse when their environmental footprint are included in the calculation.  

To tackle this problem, researchers developed a new way to measure “sustainable corporate efficiency”, combining traditional financial metrics with environmental data such as energy consumption, carbon emissions and revenues generated from environmentally friendly products and services.  

Dr Menelaos Tasiou, co-author of the study and Senior Lecturer in Finance at the University of Surrey, said: “Businesses have long been judged on how efficiently they turn resources into profit. But if those profits come with large environmental costs, the picture changes completely. What we show is that true efficiency means generating revenue while also reducing the environmental damage caused by production. In other words, profitability alone can mask how wasteful a business really is when environmental costs are considered.  

The research analysed more than 2,800 publicly listed companies across 61 countries between 2010 and 2022, creating one of the largest global datasets measuring how sustainable companies are, when both financial performance and environmental impact are assessed together.  

The team combined company financial records, in alignment with the green economy (defined as a low carbon, resource efficient and socially inclusive economy), with environmental disclosures such as energy use and greenhouse gas emissions. They then applied a machine learning technique known as Convexified Efficiency Analysis Trees (CEAT) to estimate how efficiently companies convert resources into revenue while minimising pollution.  

Unlike older approaches, the method models the reality that production creates both desirable outputs, such as revenue, and undesirable ones, such as emissions. This allows companies to be compared on how well they balance profit with environmental performance.  

The results found a moderate link between financial efficiency and environmental efficiency, meaning many firms that are strong financially are not necessarily good at managing their environmental impact.  

The study also found large differences across industries and countries. Firms operating in sectors with high emissions, such as manufacturing and energy, often lagged behind leaders that were better at reducing carbon intensity while maintaining revenue.  

Dr Tasiou continued: “Measuring efficiency in this broader way can help investors, regulators and policymakers identify companies that are genuinely prepared for a low carbon economy. Stronger management capability plays a key role. Firms with more capable management teams were more likely to balance profitability with environmental responsibility, suggesting that leadership decisions can strongly influence sustainable performance.  

“As governments push towards net zero and investors scrutinise environmental performance more closely, companies that fail to integrate sustainability into their operations risk falling behind.” 

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