Chapter 9 - Determining Fair and Reasonable Pricing

9.1.2 Reasonable pricing

A reasonable price is a price that a prudent and competent buyer would be willing to pay given available data on market conditions. Economic forces such as supply, demand, general economic conditions and competition change constantly. Hence, a price that is reasonable today may not be reasonable tomorrow. Markets can be defined by considering the number of buyers, the number of suppliers, product homogeneity, and ease of market entry and exit. Market conditions include:

• Supply and demand. The forces of supply and demand have a significant effect on the price of IT goods and services.
• General economic conditions. General economic conditions affect the prices of all goods and services, but the effect will not be the same for every product. Inflation and deflation affect the value of the dollar. Economic boom, recession and depression affect available production capacity.
• Competition. When competition does not exist, the forces of supply and demand may not work effectively. The buyer or supplier may have an advantage in the pricing decision process. Solicitation specifications that are not well defined or are too restrictive, proprietary or aimed at one solution could restrict price competition.