Premium pricing is the practice of keeping the price of a product or service artificially high in order to encourage favorable perceptions among buyers, based solely on the price. The practice is intended to exploit the (not necessarily justifiable) tendency for buyers to assume that expensive items enjoy an exceptional reputation or represent exceptional quality and distinction.

Strategic considerations

The use of premium pricing as either a marketing strategy or a competitive practice depends on certain factors that influence its profitability and sustainability. The disadvantages of this pricing strategy includes violation of the ACCC.

Such factors include:

• Information asymmetry
  Information asymmetry
  In economics and contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure...
  
   (e.g., when buyers have no independent basis to test claims of "exceptional quality" for a particular product or service -- assuming the concept is well-defined to begin with);
• Market status as a Luxury good
  Luxury good
  Luxury goods are products and services that are not considered essential and associated with affluence.The concept of luxury has been present in various forms since the beginning of civilization. Its role was just as important in ancient western and eastern empires as it is in modern societies...
  
   or a Superior good
  Superior good
  Superior goods make up a larger proportion of consumption as income rises, and therefore are a type of normal goods in consumer theory. Such a good must possess two economic characteristics: it must be scarce, and, along with that, it must have a high price...
  
  ; and
• Market dynamics such as the level of competition
  Competition
  Competition is a contest between individuals, groups, animals, etc. for territory, a niche, or a location of resources. It arises whenever two and only two strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For...
  
   and entry barriers
  Barriers to entry
  In theories of competition in economics, barriers to entry are obstacles that make it difficult to enter a given market. The term can refer to hindrances a firm faces in trying to enter a market or industry - such as government regulation, or a large, established firm taking advantage of economies...
  
  .