How Artificial Markups Work
Walk through any department store or scroll a major retail site and you'll encounter the same pattern: a product priced at $200, slashed to $79.99, with "60% OFF" stamped across the tag in red. The implied narrative is straightforward — you're getting a significant deal off what the item is normally worth. The reality is often more complicated.
Retailers are legally allowed to set their own reference prices — the "was" or "original" or "compare at" figure shown alongside the sale price. The problem is that some reference prices are set not to reflect what the item ever realistically sold for, but to make the markdown look as dramatic as possible. The practice is sometimes called price anchoring: establishing a high number first so that whatever comes after seems like a bargain by comparison. See how this connects to broader manipulation tactics in our piece on anchoring and perceived value.
The Federal Trade Commission (FTC) has long-standing guidance stating that a former price should be a bona fide price at which the item was actually offered to the public for a reasonably substantial period. But "reasonably substantial" is vague, enforcement varies by state, and a single day of offering an item at an inflated price before marking it down can — in some interpretations — satisfy that threshold.
"Compare At" Labels Deserve Extra Scrutiny
Unlike a "was" price — which implies the retailer's own prior price — a "compare at" label may reference a competitor's price, a manufacturer's suggested retail price, or an estimated market value that was never an actual transaction price. These figures are sometimes set by the retailer with significant discretion. Always verify what the comparison actually represents before treating it as meaningful context.
Common Myths About Sale Prices — Corrected
Shoppers carry a set of intuitive assumptions about how discounts work. Many of those assumptions are exactly what retailers count on. Here are the most consequential myths, fact-checked.
Myth
A higher original price means the product is worth more.
Fact
The reference price reflects what the retailer chose to list, not an independent assessment of the product's value or quality.
Retailers set their own original prices. There is no external auditor verifying that a $300 "original" price reflects manufacturing cost, market demand, or competitive value. Some reference prices are set with the explicit goal of making a specific markdown percentage look impressive. The original price is a marketing input, not an appraisal.
Myth
If something is always on sale, the sale price must be a genuine deal.
Fact
Perpetual or near-permanent sales are a documented retail strategy — the 'sale' price is effectively the real price.
Some product categories — furniture, bedding, and jewelry being the most cited examples — run promotional pricing so consistently that the "original" price is rarely if ever what most customers pay. Consumer protection agencies in several states have pursued legal action against retailers for this practice. If you rarely see a product at its stated original price, treat the sale price as the baseline, not a discount.
Myth
"Compare at" and "was" prices mean the same thing.
Fact
These labels carry different meanings and different regulatory standards depending on the retailer and jurisdiction.
"Was" typically implies the item was sold at that price by the same retailer. "Compare at" often means the price was set by another retailer, or it is the manufacturer's suggested retail price — which may never have been the actual transaction price anywhere. Reading these distinctions carefully changes how much weight you should give the reference figure.
Myth
Bigger percentage discounts always mean better deals.
Fact
Percentage off is calculated from the reference price — inflate the reference price and any percentage looks impressive.
A 70% discount off an artificially inflated reference price can produce a final price higher than a competitor's everyday price for the same item. The percentage is a ratio, not an absolute measure of savings. The only meaningful question is whether the price you pay is competitive for that product in the current market — not how far it sits below an arbitrary starting number.
Myth
Laws protect shoppers from fake original prices.
Fact
Regulations exist, but definitions are broad, enforcement is inconsistent, and the burden on shoppers to identify violations is real.
The FTC and many states have rules requiring that reference prices reflect genuine prior offering prices. But proving a violation typically requires showing the item was never sold at the original price — a standard that can be difficult to meet when retailers set a high price briefly before marking it down. Several high-profile settlements have been reached in this area, but they have not eliminated the practice. Regulatory protection is imperfect; informed shopping behavior fills the gap.
For a broader look at when a markdown is the real thing versus a manufactured event, see When a "Sale" Isn't Really a Sale.
What the Data Actually Shows
Concerns about reference pricing are not hypothetical. Regulatory agencies and consumer advocates have documented the practice across retail categories.
~$50M
FTC and state reference-price settlement amounts
Multiple major U.S. retailers have reached settlements with the FTC and state attorneys general over inflated reference pricing practices in the 2010s and 2020s, with individual settlements reaching into the tens of millions of dollars.
87%
Shoppers influenced by crossed-out prices
Consumer research consistently finds that the presence of a higher crossed-out price measurably increases purchase likelihood and perceived value, even when buyers are told reference prices may be inaccurate.
6+ months
How long some 'sale' prices persist unchanged
Price-tracking analyses of major e-commerce platforms have found numerous products listed at promotional prices for six months or longer without returning to the stated original price.
These patterns matter because shoppers consistently overweight the original price when evaluating a deal. Research in behavioral economics — including work tied to Nobel laureate Daniel Kahneman's framing on anchoring — shows that a crossed-out number influences perceived value even when buyers consciously know the reference price may be unreliable. Understanding the mechanics, covered in depth in our retail pricing psychology explainer, is the first step to neutralizing the effect.
How to Verify Whether a Discount Is Real
Skepticism is useful only when paired with a method. Here are concrete steps any shopper can take before accepting a sale price at face value:
- Check historical price data. Free browser extensions and websites track price history on major e-commerce platforms. If a product has been at or near the "sale" price for the past six months, the original price is likely inflated.
- Search the item's base model number. Manufacturers' suggested retail prices (MSRPs) are publicly listed for most categories. If the "original" price exceeds the MSRP, question where that figure came from.
- Compare across unaffiliated retailers. The same product listed at a dramatically different price elsewhere is a signal worth examining.
- Look at unit pricing. Especially for consumables and bundled goods, unit price versus sticker price reveals the actual cost per use or per ounce — a more honest measure than a percentage off.
- Run a pre-purchase checklist. Before completing any purchase, whether in-store or online, a systematic review helps separate genuine value from clever packaging. Our real-value checklist walks through the key questions.
The Only Price That Matters Is What You Pay vs. Market Reality
Strip away the original price, the percentage badge, and the sale sign. The single useful question is: compared to what this product actually sells for elsewhere right now, is this price competitive? That answer requires a quick search, not trust in a tag. Build this habit before any significant purchase and you sidestep the entire artificial markup system.
Not all discounts are manufactured, of course. Clearance pricing, end-of-season markdowns, and genuine overstock sales behave differently from inflated-anchor pricing. Understanding the distinctions — explained in Decoding a Discount — helps you know when patience pays off and when a price is genuinely low.
The content on this site is for informational purposes only and is not a substitute for professional advice. Always consult a qualified professional for guidance specific to your situation.