[Code of Federal Regulations]
[Title 16, Volume 1]
[Revised as of January 1, 2005]
From the U.S. Government Printing Office via GPO Access
[CITE: 16CFR233.1]

[Page 156-157]
 
                     TITLE 16--COMMERCIAL PRACTICES
 
                   CHAPTER I--FEDERAL TRADE COMMISSION
 
PART 233_GUIDES AGAINST DECEPTIVE PRICING--Table of Contents
 
Sec. 233.1  Former price comparisons.




Sec.
233.1 Former price comparisons.
233.2 Retail price comparisons; comparable value comparisons.
233.3 Advertising retail prices which have been established or suggested 
          by manufacturers (or other nonretail distributors).
233.4 Bargain offers based upon the purchase of other merchandise.
233.5 Miscellaneous price comparisons.

    Authority: Secs. 5, 6, 38 Stat. 719, as amended, 721; 15 U.S.C. 45, 
46.

    Source: 32 FR 15534, Nov. 8, 1967, unless otherwise noted.


    (a) One of the most commonly used forms of bargain advertising is to 
offer a reduction from the advertiser's own former price for an article. 
If the former price is the actual, bona fide price at which the article 
was offered to the public on a regular basis for a reasonably 
substantial period of time, it provides a legitimate basis for the 
advertising of a price comparison. Where the former price is genuine, 
the bargain being advertised is a true one. If, on the other hand, the 
former price being advertised is not bona fide but fictitious--for 
example, where an artificial, inflated price was established for the 
purpose of enabling the subsequent offer of a large reduction--the 
``bargain'' being advertised is a false one; the purchaser is not 
receiving the unusual value he expects. In such a case, the ``reduced'' 
price is, in reality, probably just the seller's regular price.
    (b) A former price is not necessarily fictitious merely because no 
sales at the advertised price were made. The advertiser should be 
especially careful, however, in such a case, that the price is one at 
which the product was openly and actively offered for sale, for a 
reasonably substantial period of time, in the recent, regular course of 
his business, honestly and in good faith--and, of course, not for the 
purpose of establishing a fictitious higher price on which a deceptive 
comparison might be based. And the advertiser should scrupulously avoid 
any implication that a former price is a selling, not an asking price 
(for example, by use of such language as, ``Formerly sold at $------''), 
unless substantial sales at that price were actually made.
    (c) The following is an example of a price comparison based on a 
fictitious former price. John Doe is a retailer of Brand X fountain 
pens, which cost him $5 each. His usual markup is 50 percent over cost; 
that is, his regular retail price is $7.50. In order subsequently to 
offer an unusual ``bargain'', Doe begins offering Brand X at $10 per 
pen. He realizes that he will be able to sell no, or very few, pens at 
this inflated price. But he doesn't care, for he maintains that price 
for only a few days. Then he ``cuts'' the price to its usual level--
$7.50--and advertises: ``Terrific Bargain: X Pens, Were $10, Now Only 
$7.50!'' This is obviously a false claim. The advertised ``bargain'' is 
not genuine.
    (d) Other illustrations of fictitious price comparisons could be 
given. An advertiser might use a price at which he never offered the 
article at all; he might feature a price which was not used in the 
regular course of business, or which was not used in the recent past but 
at some remote period in the past, without making disclosure of that 
fact; he might use a price that was not openly offered to the public, or 
that was not maintained for a reasonable length of time, but was 
immediately reduced.
    (e) If the former price is set forth in the advertisement, whether 
accompanied or not by descriptive terminology such as ``Regularly,'' 
``Usually,'' ``Formerly,'' etc., the advertiser should make certain that 
the former price is not a fictitious one. If the former price, or the 
amount or percentage of reduction, is not stated in the advertisement, 
as when the ad merely states, ``Sale,'' the advertiser must take care 
that the amount of reduction

[[Page 157]]

is not so insignificant as to be meaningless. It should be sufficiently 
large that the consumer, if he knew what it was, would believe that a 
genuine bargain or saving was being offered. An advertiser who claims 
that an item has been ``Reduced to $9.99,'' when the former price was 
$10, is misleading the consumer, who will understand the claim to mean 
that a much greater, and not merely nominal, reduction was being 
offered. [Guide I]