Pricing Startups fair & legal | IT-Medienrecht

Learn how to set fair prices for startups. Discover legal foundations for pricing startups in Germany & EU. Maximize transparency & avoid legal pitfalls.

Modern start-ups, especially in the Software-as-a-Service (SaaS) sector, mobile apps, and digital services, face the challenge of setting prices honestly and fairly. This holds true even though digital goods often have almost zero marginal costs. Both legal requirements and moral and economic considerations define the framework for pricing strategy.

This report provides a comprehensive overview of the legal foundations in Germany and Europe, with a comparison to the USA. It discusses moral and socio-economic aspects, highlights industry-specific differences, and examines in-app purchases and virtual goods (e.g., loot boxes). Finally, it addresses aspects of sustainability and social responsibility. It becomes clear that law and ethics go hand in hand. Lawyers can therefore not only provide legal advice to start-ups but also act as strategic sparring partners to develop fair and competitive pricing structures.

Legal Framework for Pricing in Germany and Europe

In Germany, companies are generally free to set their own prices. However, they are subject to important restrictions under fair trading law. The Federal Court of Justice (BGH) succinctly formulated this principle:

“The trader is basically free to set his own prices. He may raise or lower his announced prices at any time at his discretion, provided that there are no price regulations to the contrary or unfair circumstances […]”

Unfair accompanying circumstances exist, for example, if so-called moon prices are feigned by constantly raising and lowering prices (price gouging). The Act against Unfair Competition (UWG) contains a central prohibition of misleading statements. This prohibits false or deceptive statements about the price of goods or services. Consumers should be comprehensively protected from misleading price information. For example, advertising with crossed-out “previous” prices is only permitted if this price was actually previously demanded for a reasonable period of time. Otherwise, this constitutes unlawful misleading pricing.

In addition to the UWG, the Price Indication Ordinance (PAngV) stipulates a high level of price transparency. For instance, it obliges companies to show consumers total prices including taxes. In the case of discount promotions, it requires indicating the reference price, which is the lowest price in the last 30 days before the discount. This rule, introduced by the EU Omnibus Directive, aims to prevent retailers from artificially increasing prices for a short time to suggest fictitious discounts later.

A violation is subject to a warning, as a case from 2022 shows. The discounter Netto advertised coffee with a “-36%” discount, but had stated the reference price unclearly. The Higher Regional Court of Nuremberg prohibited this practice, as the consumer was unable to recognize the actual reference price due to the overloaded presentation.

Consumer Protection and Pricing Transparency

Information obligations in the BGB/EGBGB also ensure transparency, especially in consumer contract law, which implements the EU Consumer Rights Directive. The full final price, including all taxes and any additional costs, must be communicated before the contract is concluded. When ordering online, the price must be clearly highlighted in the order overview before the consumer clicks “buy”. Hidden costs or surprising fees violate this transparency requirement.

Furthermore, Section 312j (3) BGB requires the well-known “button solution.” The order button must clearly indicate the obligation to pay (e.g., “Buy now – subject to payment”) to prevent subscription traps. If such essential price or contract information is concealed or omitted, this can be punished as a misleading omission (Section 5a UWG).

The German Civil Code (BGB) itself sets limits on blatant unfairness. Extremely excessive prices can be immoral and therefore void (BGB §138). The classic definition of usury applies when there is a conspicuous disproportion between performance and consideration and the customer’s weak position is exploited. German courts often assume such a “conspicuous disproportion” from about 100% overpricing, meaning when the price is more than twice as high as usual. For example, a locksmith contract for approximately €518 for a door opening, whose reasonable value was about €245, was declared void as immoral.

Even without proof of an emergency situation, §138 para. 1 BGB is sufficient in blatant cases. If a price exceeds the usual market remuneration by more than 100%, there may be a factual presumption of reprehensible conduct. In other words, charging twice the normal price risks having the contract struck down by the court for breach of morality. Usury is even sanctioned under criminal law (§291 StGB) if, for instance, a predicament is deliberately exploited. Although these standards apply only in extreme cases (e.g., emergency situations, exploiting economically inexperienced customers), they show that civil law requires at least a minimum level of equivalence and fairness in prices. Historically, excessive “drought prices” like exorbitant prices for water in hot weather have always been considered unfair.

Antitrust Aspects: Market Power, Monopoly Position, and Price Abuse

In addition to fair trading law, antitrust law applies if a company with significant market power abuses its pricing. The German Act against Restraints of Competition (GWB) and Art. 102 TFEU (EU antitrust law) prohibit the abuse of a dominant market position, particularly by demanding unreasonably high or predatory low prices. However, the hurdle for classifying prices as “abuse” is high.

Cartel authorities and courts intervene only in exceptional cases, as the same principle applies here: high profits should be possible as an incentive for innovation. For instance, in the water price decision (2010), the Federal Court of Justice emphasized the special situation of monopolists in essential supply services. Water suppliers may not simply charge arbitrarily high prices despite having no competition. In Wetzlar, a water supplier was obliged to reduce its tariffs by approximately 30% because a comparison with 18 other suppliers showed excessively high prices.

The cartel authority was permitted to force a conspicuously expensive supplier to reduce its prices. In this case, the burden of proof was reversed: the company had to prove that the price was justified, which it failed to do. This abuse supervision is particularly effective when consumers lack alternatives, such as when changing water suppliers is impossible. The legal basis is Section 19 (2) No. 2 GWB, which states that prices of a market dominator are abusive if, among other things, they are significantly above the competitive level.

A “price analogous to competition” is typically determined through market comparisons or cost analysis. Only if the price charged significantly exceeds the hypothetical competitive price is there a prohibited abuse of price levels. Courts therefore allow dominant companies a considerable price margin and intervene only if this is clearly exceeded. For example, the Hamburg Regional Court ruled in 2022 in the EDEKA vs. Coca-Cola dispute that Coca-Cola was not acting in breach of antitrust law despite a price increase, partly because Edeka had not sufficiently proven the inappropriateness. It is not enough to show that a price has risen sharply; one must prove that it is excessive in absolute terms, for example, compared to comparable markets or based on the cost structure. This indicates that excessive price cases are rare. Cartel authorities more frequently focus on classic competition violations such as price fixing or the crowding out of competitors through dumping prices.

Predatory pricing is the other side of the coin: prices that are too low can also be anti-competitive. This occurs if a dominant company uses them to force competitors out of the market. In Germany, even non-dominant companies were historically prohibited from selling below cost price in the UWG to protect smaller retailers. A well-known example is the Wal-Mart case, where Wal-Mart had permanently sold certain products below cost price in the early 2000s, which the Federal Cartel Office prohibited. The BGH confirmed that such predatory pricing is inadmissible to protect small and medium-sized competitors from being squeezed out.

Since then, § 19 para. 2 No.1 GWB is relevant: A dominant or powerful company may not charge prices below cost if this impairs competition. For normal market players, Section 3 UWG in conjunction with the blacklist applies to aggressive practices. Occasionally, extreme dumping offers are assessed as “unfair” if their sole purpose is to harm competitors.

Price agreements (horizontal cartels) are, of course, strictly prohibited (Art. 101 TFEU, Section 1 ARC). Start-ups that agree on minimum prices or customer allocation with competitors, for example, commit an antitrust violation that can result in draconian fines. Vertical price fixing is also illegal; a manufacturer may not dictate fixed sales prices to its dealers. These classic competition rules also apply to SaaS and app providers. Even algorithmic price coordination can be considered a cartel if it leads to de facto collusive behavior.

Transparency Obligations and Personalized Pricing

One new aspect is the personalization of prices, where consumer law and data protection law converge. Since May 2022, there has been an EU-wide obligation under the Omnibus Directive to provide information on personalized prices. If an online provider adjusts the price individually on the basis of automated decision-making or profiling, it must clearly inform the consumer of this. This information, often indicating a “personalized price,” should enable the customer to properly assess the offer. Importantly, dynamic real-time prices, which vary according to demand, for example, do not fall under this information rule as long as they are based on market events and not on the individual.

Nevertheless, the topic overlaps with the GDPR: If a startup uses personal data (location, device type, purchase history, etc.) for pricing, the General Data Protection Regulation and the General Equal Treatment Act (AGG) apply. According to Art. 13 GDPR, the consumer must be informed of the purpose when the data is collected, in this case, that their data will be used for pricing. The AGG also prohibits discriminatory pricing based on sensitive characteristics: Price differentiation based on gender, ethnicity, or religion, for example, is not permitted. A company is therefore not allowed to systematically show women higher prices than men, as this would be prohibited discrimination under Section 19 AGG. However, price adjustments based on willingness to pay or customer loyalty are permitted as long as no protected characteristics are used. For more information on automated pricing, consult our specialized articles.

In summary, the German and European rules create a legal framework ensuring honesty and transparency in pricing. Start-ups must provide end consumers with clear, non-misleading price information. They may not operate with fake discounts or hidden costs. They should also comply with information obligations in the case of innovative pricing models, such as dynamic pricing or personalized offers. Market power requires restraint: neither exploitation through excessive prices nor abuse through dumping. Otherwise, there is a risk of antitrust proceedings. However, many young tech companies operate in competitive markets where fair trading law (UWG/PAngV) is particularly relevant to avoid losing user trust.

Comparison: Legal Situation and Regulatory Approaches in the USA

By way of contrast, it is worth examining the USA. American law often relies more on market mechanisms and less on strict price regulations. Pricing is largely free in the USA as long as there are no anti-trust violations like price fixing or targeted monopolization. In particular, there is no general ban on excessive prices. The U.S. Supreme Court emphasized this in Verizon v. Trinko (2004):

“The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices… attracts business acumen and induces risk taking”.

In other words, high prices from a monopolist are legal in themselves and are even considered an incentive for innovation. Only additional anti-competitive practices, such as eliminating competitors, make it illegal. While EU antitrust law theoretically recognizes excessive pricing, US law almost completely shies away from such interventions.

There are also differences in unfair competition law. The USA does not have a codification identical to the UWG. However, unfair or deceptive practices are punished by federal and state laws, such as by the Federal Trade Commission (FTC) or State Consumer Protection Acts. The FTC has Guides Against Deceptive Pricing, which prohibit misleading price advertising in a similar way to our PAngV. For example, 16 CFR §233.1 (Guide on Former Price Comparisons) requires that a crossed-out “former price” must actually have been the last price seriously charged. Advertising an item as “reduced” when the former price was only briefly set or feigned is also considered misleading under US law and can be sanctioned. However, these are guidelines, and enforcement is primarily carried out by the FTC in individual cases or through class action lawsuits by consumers in cases of fraud. Obligations like the German reference price indication “lowest price of the last 30 days” do not exist there. Similarly, there is no general obligation to disclose personalized prices; this remains a voluntary transparency issue in the US, whereas the EU now requires it. Companies should also be aware of legal challenges when dealing with dark patterns in UX design.

Interestingly, some US states have specific pricing laws, e.g., so-called Unfair Sales Acts, which prohibit sales below cost in certain sectors. This is similar to the Wal-Mart case in Germany, which applied nationwide. But these laws are mostly designed to protect small local retailers and are controversial. Overall, the American system relies more on informed consumers and competition to produce fair prices, rather than extensive detailed regulation. Consumer protection there focuses more on enforcement against fraudulent pricing schemes and less on proactive transparency as in the EU.

For a startup, this means that in the USA one can act relatively freely when setting prices. However, there is a risk of losing reputation and customer trust if perceived as unfair. Misrepresentation, such as false strike prices, is also punished there. Monopoly-like practices can become expensive through lawsuits, antitrust litigation, even without a formal ban on “usurious prices.” The EU and Germany, on the other hand, have a more tightly meshed network of consumer protection regulations that start-ups in the local market must adhere to. For general legal challenges for start-ups, consulting an IT law expert is advisable.

Moral and Socio-Economic Issues in Fair Pricing

Legal compliance is one thing, but honesty in pricing also raises fundamental ethical and economic questions. Digital start-ups, in particular, are caught between maximizing profits and customer expectations of fairness. Some key discussion points include: Are innovative startups allowed to charge very high prices even though their marginal costs are almost zero? Is there such a thing as a moral obligation to set fair prices? And how does this fit with a company’s responsibility towards customers and society?

High Prices Despite Low Marginal Costs: Legitimate or Dilemma?

Many digital products such as software, apps, and digital content have hardly any production costs per user after initial development. So, is it justified to sell them with high margins? From an economic perspective, in an ideal competitive environment, the price would tend towards marginal costs, i.e., close to zero. In reality, however, start-ups often invest heavily in development, marketing, and infrastructure. The price must cover these fixed costs and generate a return. Innovations are usually only created if there is a prospect of generating disproportionately high profits when successful. The argument is that if digital goods were sold at cost price alone, there would be no incentive for innovation at all. Peter F. Drucker, the well-known management thinker, wrote: “No apology is needed for profit.” The pursuit of profit is not immoral; on the contrary, profit finances future jobs and innovations, which ultimately makes capitalism a “moral system.” He even emphasized: “Profit and profit alone can supply the capital for more jobs and better jobs.” From this point of view, a startup can certainly charge “high” prices if the market allows it, as this ensures its growth and perhaps creates new solutions.

However, there are limits to the pure market principle as soon as customers feel they are being taken advantage of. Price fairness research shows that consumers measure prices not only rationally in terms of costs or benefits but also emotionally in terms of a sense of fairness. If customers perceive a price as unfair, for example, because they consider the provider’s effort to be low, this can affect customer loyalty. Consider examples where many users reacted indignantly when pharmaceutical start-ups charged exorbitant prices for cheaply produced medicines. This was legally permissible but morally questionable. Similarly, if a SaaS platform suddenly increases fees drastically without any recognizable added value, customers feel neglected. Fairness as a social good can therefore become a competitive advantage. A provider that chooses moderate margins and perhaps communicates this openly gains trust.

Historically, the question of the “fair price” has been intensely debated. Even scholastics like Thomas Aquinas demanded that prices should be equivalent to the service provided and should not exploit any hardship. In modern terms: performance and consideration should correspond. It is morally questionable if a provider only collects far more than the value of its service due to a monopoly position. Although this cannot be absolutely implemented in a market economy, where supply and demand determine the price, this idea often resonates in public opinion.

In the digital context, this means that if a start-up has developed a technically brilliant virtual reality tool, a certain “innovation reward” will be accepted (high price due to high uniqueness). But as soon as competitors offer something similar, prices are expected to fall. Marginal costs close to zero carry the risk that a dominant player will skim off extreme profits, even though each additional customer costs almost nothing. A moral approach here would be to either lower prices as scaling increases or reinvest profits in improvements and social benefits voluntarily. Some companies do this, such as open-source models or freemium providers that offer many features for free because the additional costs are minimal, prioritizing reach over maximum profit. For insights into the data separation and compliance requirements for SaaS architecture, you can explore our resources.

Moral Obligation for Fair Pricing?

Opinions differ on whether companies have an ethical obligation to price fairly, or if their only duty to society is to act legally and be profitable. Milton Friedman famously argued that the social responsibility of companies is primarily to make profits within the law, as this is how they best fulfill their purpose in the economic system. According to this view, it would not be unethical to charge the highest possible price that the market will bear, as long as no law is violated.

Many modern positions counter this with a stakeholder model. They argue that companies have a responsibility towards customers, employees, society, and the environment, not just shareholders. It follows that fairness and honesty in dealing with customers are definitely moral imperatives. Deliberately misleading or ripping off a customer may bring short-term profit, but it is incompatible with values such as honesty, trust, and respect. In practice, it is clear that many founders consciously opt for fair prices to uphold their values. For example, companies with social or sustainable aspirations, known as social entrepreneurship, emphasize that they want to earn money but not at the expense of their customers.

Great entrepreneurs throughout history have also made striking statements on this subject. Henry Ford, for instance, pursued the goal of making the automobile affordable for ordinary people. His famous quote was: “I will build a car for the great multitude [...] it will be so low in price that no man making a good salary will be unable to own one.” This mission statement was motivated both strategically, for market development, and morally. Ford believed that a product like the car should serve society by providing as many people as possible with access to it. He also famously increased the wages of his workers so they could afford his cars, demonstrating a holistic consideration of fairness in the value chain.

Peter Drucker, on the other hand, emphasized that profit is necessary, but it alone does not justify unethical behavior. He wrote that profit as the only yardstick is a weak moral foundation; the pursuit of profit must be embedded in a sense of responsibility. A company should think long-term: dealing honestly with customers pays off through loyalty, while deception or ripping them off will permanently damage its reputation. In modern terms, trust is the currency in digital markets. Start-ups, in particular, that are building a brand can hardly afford to gain short-term profits through bad practices and gamble away long-term trust. The romanticization of "fail fast" also needs to be balanced with ethical considerations.

It can even be argued that fair pricing is part of corporate social responsibility (CSR). A company that calculates prices transparently and balancedly contributes to a trusting economic culture. It gives customers a fair share of the value created, focusing on customer benefit, instead of skimming off the maximum consumer surplus.

Corporate Social Responsibility in the Digital Age

In the digital age, where information circulates quickly and missteps become public immediately, social responsibility is not a “nice-to-have” but critical to success. Consumers, especially generations Y and Z, pay close attention to whether a company lives up to their values. Pricing can become a PR issue here. Consider the “shitstorms” about “rip-off apps” or fierce criticism of games publishers perceived as greedy. A startup aiming to stand out positively can communicate ethical pricing principles. For example, by stating: “We believe in fair prices – that’s why we avoid non-transparent subscription traps and design our tariffs to remain affordable for small customers.”

This also dovetails with socio-economic considerations. If digital services become central to participation in society, such as educational tools or communication platforms, the question arises whether excessive prices exclude certain groups and thus increase inequality. One could almost speak of a socio-political component here: Is it responsible to make life-changing technologies accessible only to a solvent elite? Some tech companies deliberately choose to offer their basic version free of charge, known as freemium, to ensure broad accessibility, and then earn money from premium functions. This can also be seen as a fair pricing strategy. Everyone receives a certain basic benefit for free, while those who want more or can afford it pay.

At the same time, companies must also be fair to themselves. A price that is too low for altruistic reasons can jeopardize survival. The art is to strike a balance between business sustainability and fairness towards customers. Some might say that fair pricing does not necessarily mean “cheap,” but reasonable: no usury, but also no ruinous underpricing. Ultimately, market morality is often enforced by customer behavior. If the majority of customers perceive a pricing model as unfair, the provider will have to correct it or lose customers.

Interim Conclusion: There is no strict “moral obligation” in the sense of an external requirement; freedom of contract prevails. However, from an ethical perspective, start-ups should remember that honesty and fairness in pricing are a cornerstone for reputation, customer loyalty, and long-term success. Many successful entrepreneurs have proven that it is possible to be profitable AND fair. Ultimately, a fair price is one that both sides perceive as fair: the provider because it covers its costs and makes a profit, and the customer because they perceive the equivalent value as coherent and do not feel ripped off.

Industry-Specific Differences in Pricing and Transparency

Not every industry operates in the same way. Pricing at traditional service providers differs to some extent from that in the tech world. It is worth examining areas such as web agencies, hosting providers, or consulting service providers, where the question of open pricing and transparency also arises: Should such providers disclose their pricing? Are there legal or moral arguments for or against this?

Pricing with Traditional Service Providers (Web Design, Hosting, Agencies)

Traditional service providers often work with hourly-based remuneration or flat-rate fees. These are internally composed of labor costs, overheads, and a profit mark-up. Unlike with products, there is often no price list on the website. Instead, offers are created individually. Customers sometimes ask themselves: “How is this price actually made up?” For example, a medium-sized company commissions a web agency for a new website and receives a quote for €15,000. The customer might see an estimate of 100 hours of work and wonder if the hourly rate of €150 is justified. Morally, transparency would be desirable. However, in terms of competition, it is clear that agencies are reluctant to disclose their calculations, as this would make their margin visible.

There is no legal obligation to disclose the exact calculation to the customer. The principle of contractual freedom allows service providers to quote an all-inclusive price that can be accepted or rejected by the customer. Information asymmetry is typical here: the provider knows exactly how the price is calculated, while the customer can often only make a rough estimate. As long as there is no fraud, such as deliberately false information about the hours required, this is permissible. From a legal point of view, this could only be challenged if the service provider fraudulently misleads the customer, for example, by promising “it will cost no more than €5k” and then charging €15k without any basis. In practice, customers protect themselves with cost estimates or fixed-price agreements. A cost estimate, according to BGB §650 i.V.m. Section 632 (3), is not binding. However, a significant overrun without notification can lead to the loss of the payment claim, as there may be an ancillary obligation to notify (e.g., 20% exceeded and not reported, depending on court rulings).

Morally, some argue that transparency creates trust. Some freelancers and agencies practice open costing: they inform the client about the number of hours, hourly rate, external costs, and profit share. This can strengthen the relationship in a long-term partnership, as the client sees that the service provider calculates fairly and does not add unreasonable profit. In certain sectors, such as public tenders or construction projects, an open calculation is sometimes required to ensure comparability. Example: Until recently, the HOAI (Fee Structure for Architects and Engineers) used fixed fee tables in construction planning to ensure a fair wage. Although this was loosened for competition law reasons, it still demonstrates the principle of transparency and fairness in remuneration as a regulatory instrument.

On the other hand, there are also arguments against excessive transparency. A Manager Magazin article, titled “When too much transparency hurts,” described how major customers often force their suppliers to disclose costs, only to then mercilessly negotiate down the margin. For suppliers, full disclosure also means that the customer may question every item, asking, “Does it really have to be 10 hours of design? Can’t it be done in 5?” Psychologically, it can strain the relationship if the customer scrutinizes every detail and does not allow the service provider any entrepreneurial freedom. After all, entrepreneurial risk should also be rewarded: perhaps the agency includes a buffer in case something goes wrong. If everything goes smoothly, it realizes a little more profit, which is legitimate because it has borne the risk.

The following applies to specific sectors: In heavily price-regulated sectors, such as energy supply or healthcare, there are often fixed fee scales or upper limits. In free service industries, however, the market regulates the price. For instance, hosting providers compete globally, and prices for web hosting are transparently comparable. One can only survive here with fair, competitive prices; otherwise, customers will leave. Consulting companies, conversely, often sell an intangible product, know-how, and can charge very high hourly rates if their brand allows it (e.g., top strategy consulting at €300/hour upwards). Is this unfair because the marginal cost of another PowerPoint slide is virtually zero? One might think so, but the value for the customer is not measured in terms of costs, but in terms of expertise and benefits. This shows that fairness can also mean value-based pricing. If the consultant’s advice results in millions in additional revenue for the client, a €100k consulting fee may be fair, even if the effort involved seems small.

Should service providers disclose their calculations? Legally, they can, but they don’t have to. Morally, it can make sense in partnerships, especially when long-term cooperation is involved and trust is fundamental. Many agencies handle it pragmatically: they at least explain the main components of the price to the customer (e.g., “we expect around 3 weeks of work from two developers, therefore around 240 hours, plus a one-off €500 for licenses”). This gives the customer an understanding. Fully disclosed profit mark-ups are rather unusual, as this would also weaken the negotiating position. When drafting an agency contract, these considerations are crucial.

Differences Between Traditional Services and SaaS Start-ups

While traditional service providers usually charge individual prices per project, SaaS start-ups tend to use standardized pricing models, such as monthly subscriptions staggered by package. Transparency is often higher here, as prices are publicly displayed on the website. However, SaaS prices can be complicated, involving different editions, add-ons, or user-based fees. Honesty dictates that customers do not fall into a cost trap. An ethical SaaS provider will clearly show how the price will develop if, for example, the number of users increases or the introductory price ends after one year. Some B2B SaaS providers adopt a policy of price stability for existing customers (grandfathering) to build trust. This means that once a customer joins under certain conditions, those conditions remain, even if new customers pay more later. This is voluntary but perceived as fair.

In agency contracts, on the other hand, many customers expect transparency. It is often explicitly stated in the contract, for example, that an hourly rate of €100 applies and that billing is based on actual time and effort, or that a flat-rate price Y includes specific services. It is legally important that no misleading cost components are hidden. For instance, an agency may not simply charge for additional services that the customer has not commissioned without prior agreement. For further details on drafting contracts for SaaS companies, specialized resources are available.

Conclusion in this area: Implicit expectations of fairness vary from sector to sector. A tradesman or locksmith is scrutinized more closely because end-users are often involved and there has been abuse. Accordingly, there are guidelines on what is appropriate, and indignation arises when someone demands €1000 for 5 minutes’ work. In the digital agency world, however, the business client is more likely to accept a high creative fee but expects professionalism and honesty, without fake posts. Legally, the principle of good faith (§242 BGB) always applies as a corrective. Even if a price has been agreed, the provision of services must not be deliberately inefficient or fraudulent, such as billing for 10 hours when only 5 were performed. That would constitute fraudulent behavior.

A responsible legal advisor will advise a startup in any industry to communicate clearly to its customers what they are getting for their money. Whether to disclose the internal calculation is a strategic decision. However, all contractual conditions, price components, and any changes must be disclosed transparently and in good time to avoid both legal disputes and a loss of trust.

Mobile Games and Virtual Goods: Legal Issues with In-App Purchases and Monetization

The games and app industry has its own challenges when it comes to honest pricing. Mobile games are often financed via in-app purchases, which include additional content, virtual goods, or benefits for real money. Particularly controversial are loot boxes or gacha mechanics, where users pay money to receive a random virtual reward, such as random characters or items. These mechanics raise legal questions: Are loot boxes a form of gambling? Which consumer protection and youth protection rules apply? And is aggressive monetization possibly legally restricted? For a broader understanding, see our article on T&Cs, Regulation & Compliance in Blockchain & Computer Games.

In-App Purchases and Gacha Mechanics: Legal Framework and Gambling Demarcation

Loot boxes/gacha operate similarly to a slot machine: you buy a “surprise package” and hope to win a rare prize. Critics argue that this is, in effect, online gambling, as chance primarily determines the value of the virtual prize. Game manufacturers, on the other hand, defend themselves against this classification, referring to them as “surprise mechanics, comparable to freebies.”

Legally, much depends on the question: Do the virtual items represent a prize with asset value? According to German gambling law, specifically the State Treaty on Gambling and Section 762 of the German Civil Code, gambling is defined as payment for the chance to win a valuable prize. Section 762 BGB even declares contractual claims from games of chance in the private, unlicensed sector to be unenforceable, deeming gambling debts as debts of honor. With loot boxes, the player always receives something, meaning no total loss, but sometimes only digital “junk” that they subjectively consider worthless. In such cases, their investment is then lost. Nevertheless, as a rule, every loot box purchase is legally a purchase contract for digital content, even if its exact nature is random. The concept of winnings in gambling law usually presupposes that the prize has a market value that can be converted into money.

Virtual goods as such typically have no legal monetary value. However, in many games, rare loot box items can also be bought directly in the in-game store, or there is a secondary market where players trade items for real money. If a sword from a loot box costs €5 in the official store, then this sword has a de facto value of €5; one could have bought it directly. Some platforms, such as Steam Marketplace, allow items to be traded for credit or money, and rare skins sometimes reach three- to four-digit amounts. As soon as items are tradable, it can be argued that a loot box purchase represents the purchase of a chance to win a potentially valuable prize. In such a case, the gambling offense would be more likely to be fulfilled. For further details, consider resources on Play to Earn – Blockchain gaming.

Game operators have responded by often prohibiting real-money trading of items through their terms and conditions, aiming to suppress black markets. By doing so, they formally remove the asset value of the virtual good, asserting it may not have a price in money. If trading occurs, the contract is invalid according to the T&Cs, and the operator could theoretically block the account. This ban is used to argue that the items are not for sale and therefore not a monetary gain, thus not gambling in the legal sense. German authorities have not yet regulated loot boxes as gambling but have kept a critical eye on them. Other countries have gone further: in Belgium and the Netherlands, loot boxes have been classified as illegal gambling and in some cases banned or only permitted from the age of 18. China has severely restricted loot boxes, for example, by mandating the publication of winning probabilities and imposing limitations. In Germany, the protection of minors is more likely to be controlled, which will be discussed next.

In addition to gambling elements, betting in the broader sense is also covered by Section 762 BGB. In practice, this means that if a child spends thousands of euros on loot boxes, parents could argue that these contracts are null and void or pending invalidity because minors made them without consent (§110 BGB pocket money paragraph does not apply to such sums). So far, parents have often relied on goodwill or AppStore refunds. However, legally it is clear: contracts with children without consent are invalid, especially for in-app purchases. Apple and Google have therefore introduced mechanisms like password requests and limits to prevent unauthorized purchases and offer refunds in some cases.

Consumer Protection and Youth Protection: Children in Focus

Children and young people represent a particularly vulnerable group when it comes to manipulative monetization strategies. Consumer advocates and youth protection groups criticize aggressive in-app purchase requests, psychological pressure in games, such as time-limited offers that create a fear of missing out, and mechanics that encourage addictive behavior. Legally, a clear point exists in the UWG blacklist: direct invitations to children to buy are always unfair (No. 28 Annex to Section 3(3) UWG). An advertisement or game insert specifically aimed at children that says “Buy this package now for only €5!” is not permitted in Germany. In many mobile games, attempts are made to circumvent this by keeping the message neutral or addressing it to parents. Nevertheless, colorful, child-friendly buttons like “Buy more jewels” are de facto addressed to children, which is close to the limit of legality. The protection of the economically inexperienced applies here; a game with such practices could be classified as an aggressive commercial act that exploits the inexperience of children (Section 3 (3) in conjunction with Annex UWG). More generally, age verification on the Internet is becoming increasingly important for providers.

The German Youth Protection Act (JuSchG) was amended in 2021 to include so-called “risks of use” in the age rating. From 2023, the USK (Entertainment Software Self-Regulation Body) will consider in-game purchases, chats, and loot boxes as criteria. This means that a game with explicit loot boxes or uncontrolled chats could receive a higher age rating. The USK, for example, has announced it will issue corresponding descriptors (“Contains in-game purchases with random elements”). While this is not yet a ban, a warning for parents and higher age ratings, perhaps “USK 16” instead of “USK 6,” can incentivize developers to design more youth-friendly games. Additionally, Section 6 (2) JuSchG generally prohibits children and young people from participating in games of chance with the possibility of winning. This implies that if a game is legally classified as a game of chance, minors would not be allowed to participate at all. This situation is currently unclear, but if the legal situation changes, many games would have to be approved for 18+ or loot boxes would need to be switched off for users under 18.

Aspects such as cost transparency are also crucial in terms of consumer law. Mobile games are often initially “free to play,” enticing users to play for free but later requiring almost mandatory purchases to progress, known as “pay to win.” While the concept itself is not illegal, communication must be honest. If a game is advertised as free, game-relevant content must not be entirely hidden behind a paywall; otherwise, the advertising would be misleading. Any subscriptions, such as VIP memberships or monthly passes, must also be clearly recognizable and easy to cancel. The “button solution” implemented from July 2022 mandates that every permanent online contract must offer a cancel button, which also applies to app subscriptions. Consumer advice centers have issued warnings to some providers in the past, for example, due to insufficient information on subscription costs after a test phase.

Opportunity Costs, Psychological Pressure vs. Production Costs: Ethical Tensions of Virtual Goods

Virtual goods are characterized by their production hardly costing the provider anything, yet their value for the user can be subjectively high. For example, a rare skin might look cool but is actually only a few pixels. Providers argue that they create entertainment and emotion, which users can pay for just like any service. Critics, however, contend that prices are disproportionate to real costs and exploit psychological vulnerabilities. Opportunity costs arise for players if they purchase progress instead of spending hours grinding, investing time. Providers monetize time savings, which seems legitimate. However, they often deliberately design a grindy game to sell the shortcut, a practice some find perfidious.

Legally, this area of tension primarily falls under general rules, such as the UWG against aggressiveness and misleading information, and the protection of minors. Aggressive commercial action could be an accusation if, for example, a game creates pressure (e.g., “This offer disappears in 1:00 minute – buy now!” in a children’s game). The UWG Annex also prohibits creating the false impression of winning a prize that will only be paid out if a product is purchased. Some games might announce, “You’ve won 100 coins!” but require an initial investment of money to redeem them, which would be unfair.

Marketing pressure in apps, such as constant pop-ups or push messages with offers, can also be relevant under data protection law if personalized. However, the focus is usually on ethics: companies that monetize too aggressively are often denounced in the media and on social media.

The resulting damage to image can lead to regulation. When the debate about loot box addiction intensified, some major publishers reacted voluntarily. For example, many games now clearly display the probability of loot box content, which is even mandatory in China. Games like Fortnite have partly switched to battle pass models, where the customer receives a defined amount of content for a fixed price instead of gambling mechanics. This was likely done to present a more family-friendly image. This demonstrates that social pressure and self-regulation play a role even before legislators intervene.

Legal Barriers to Aggressive Monetization: Do They Exist?

In summary, there are some legal limits, but no specific “in-app purchase paragraph,” except for aspects related to the protection of minors. The following points should be noted:

Additionally, politicians across the EU are discussing whether loot boxes should be regulated. A report by the EU Parliament in 2022 recommended investigating and possibly regulating loot box practices and manipulative design elements. This indicates an evolving area. For more information about legal guidelines in games, you might be interested in our article on contracts with voice actors, streamers and test players.

For start-ups in the mobile app industry, this means: Honesty pays off. If you monetize a game, for example, you should have transparent prices; a clear price for a clearly defined item receives less criticism than gambling boxes. If random mechanics are used, the odds should be disclosed, and children should be kept away. A lawyer will preventively check whether, for example, the user guidance in the game store is designed to avoid exerting unfair pressure. They can also advise on how to obtain or at least document parental consent to avoid invalid contracts. The article on chain of rights in game development also offers valuable insights.

Keyword transparency of costs vs. production costs: Some players demand that developers disclose how much it cost to develop an item to justify the price. This is economically unrealistic. However, what makes sense and is morally required is to communicate why an in-app purchase is worth the money, for example, through added value in the game, instead of relying solely on addictive impulses. This way, the customer feels like a paying supporter and not a victim of a “rip-off scam.” Community-oriented games, in particular, show that fair, respectful monetization can lead to a dedicated fanbase that pays voluntarily, as seen in “free to play, pay if you like” models in indie games.

Cross-Cutting Topic: Sustainability, Social Responsibility, and Supply Chain Law

Fair pricing is closely related to sustainability and corporate social responsibility (CSR). At a time when start-ups are paying more attention to social and ecological responsibility, the question arises: does fair pricing have anything to do with sustainable business? In addition, the new Supply Chain Due Diligence Act (LkSG) introduces a legal framework that initially affects large companies but may also become relevant for start-ups in the long term, either directly or indirectly.

Supply Chain Due Diligence Act: Impact on Start-ups and SaaS Companies

The German Supply Chain Act, in force since 2023, initially obliges companies with more than 3,000 employees, and from 2024 with more than 1,000 employees, to conduct human rights and environmental due diligence in their supply chains. Most startups and SaaS companies are significantly smaller and are not formally covered by the law. Nevertheless, they should not ignore this issue. On the one hand, the EU is planning an even more far-reaching Corporate Sustainability Due Diligence Directive (CSDDD), which could potentially include companies with 500 or even 250 employees or more. On the other hand, the obligations of large companies impact their suppliers: if a startup works as a software service provider for a large company, it may be contractually obliged to comply with certain codes of conduct and, for its part, to pay attention to socially responsible processes.

For SaaS companies, the question is: What is our supply chain? With physical products, one typically thinks of raw materials, factories, and transportation. For digital services, the supply chain is more in areas such as data centers, including server hardware and power, possibly hardware manufacturing, or content moderation outsourced to countries with cheaper labor. For instance, an AI startup that has training data labeled in Kenya has this as part of its supply chain where working conditions are relevant. Although the LkSG formally obliges only large companies, a responsible startup will voluntarily check for human rights risks in its value chain, such as the exploitation of crowd workers or conflict minerals in servers. If such risks exist, it should take countermeasures, such as choosing other suppliers or implementing contracts with minimum standards. This aligns with principles of sustainable contract design for green start-ups.

Pricing and supply chain responsibility are linked in that extremely low prices are often only possible through exploitation within the chain. Conversely, a company with fair prices is more likely to ensure that it pays its partners appropriately. If a SaaS provider feels pressure to offer its cloud services at dirt-cheap prices, it may be tempted to save on energy, using coal instead of green electricity, or on personnel, paying low wages for support staff. However, sustainable business requires that true costs are considered. This means calculating a price that internalizes both ecological and social costs. In this sense, a price that is too low may not be sustainable because costs are externalized somewhere, affecting the environment or people. A fair price can therefore mean two things: fair for the customer and fair for everyone involved in the product. For more insights on this topic, refer to NIS2 compliance in the SaaS sector.

Combining Fair Pricing and Sustainable Business Practices

Fair pricing can extend to the entire value chain. In the fair trade sense, it means that suppliers and employees are also paid fairly, environmental costs are taken into account, and profits are not unilaterally maximized at the expense of others. An example from the traditional economy: a textile manufacturer that demands only the lowest prices may be forcing its suppliers to pay unfair wages. Transferred to tech: If a data center operator offers its cloud services at dumping prices, this could imply that it pays little tax, engages in tax avoidance, or uses dirty electricity to save costs, which then generates environmental follow-up costs. This concept also connects to broader discussions about artificial intelligence in the company and its ethical implications.

More and more companies are striving to act in a holistically sustainable manner. Corporate Social Responsibility (CSR) reports emphasize aspects such as fair business practices, employee orientation, economical use of resources, climate protection, and human rights. Fair business practices can also include fair pricing strategies, for example, avoiding excessive margins on essential products or offering special discounts for disadvantaged groups. Some SaaS start-ups, for example, provide special conditions for non-profit organizations or developing countries, which can be seen as socially responsible pricing.

Transparency, a core principle of CSR, also applies to pricing. In the sustainability sector, some companies practice “open book pricing”: they disclose how the price is composed, detailing material, wages, and margin. A prominent example outside of IT is the outdoor outfitter VAUDE, which emphasizes in its CSR report that it strives for a fair price-performance ratio combined with high product quality and sustainability. Although only a few tech companies fully adopt this concept, it demonstrates a trend towards involving customers more closely and communicating honestly. Our article on sustainable contract design for green start-ups provides additional context.

A sustainable digital business model also ensures that prices are sustainable in the long term. Dumping prices that later require drastic increases frustrate customers, as seen with many online services that were initially free and then introduced monetization. Here, fairness and sustainability in the economic sense mean finding a price that is reasonable today and tomorrow, rather than offering short-sighted bait with subsequent price shocks.

Corporate Digital Responsibility (CDR)

CSR in the digital context, sometimes referred to as Corporate Digital Responsibility (CDR), encompasses various fields. These include data protection, ethical use of AI, diversity, and the environmental friendliness of IT. Pricing, while not a classic CSR category, is indirectly affected. For example:

Finally, there is the concept of shared value: Companies should operate in a way that benefits both themselves and society. Fair prices can play a role here. Instead of retaining extreme profit margins, a company can, for example, allocate a portion for social projects or keep prices more moderate to provide more people with access. This also benefits the company in the long term by expanding its market. For general legal aspects of strategic planning for influencer agencies, these ethical considerations are increasingly relevant.

For the lawyer as a sparring partner, this means helping start-ups to strategically reflect on how their pricing strategy aligns with their values and legal obligations. For example, they can point out that greenwashing, advertising sustainably but not acting accordingly, is legally risky. Therefore, if a company advertises fair prices, there should be substance to it. They can help establish compliance with the Supply Chain Act early if the start-up is growing rapidly or serves large customers. A lawyer can also classify which CSR promises can be made with a clear conscience without becoming legally vulnerable later on.

Example: A SaaS startup wants to write on its website, “We stand for fair prices and social responsibility – we donate 5% of our turnover to educational projects.” The lawyer will advise making this statement binding to avoid it being considered an empty marketing phrase. They will also ensure it is tax and legally sound. At the same time, this forms part of the brand story, which the lawyer will protect legally through trademarks and terms and conditions clauses, also addressing what happens if losses are incurred, such as whether donations are still required. In this way, the lawyer becomes a co-creator of a credible and legally compliant CSR strategy.

Conclusion: Legal Framework and Strategic Added Value of Fair Pricing

Honesty and fair pricing are not an end in themselves, but a decisive factor for sustainability in the digital age, both financially and in terms of reputation. From a legal perspective, start-ups operate in a complex field of competition law, consumer protection, data protection, anti-discrimination, and, if successful in the market, antitrust law. Violations, whether deliberate deception or unconscious negligence, can lead to warnings, penalties, or compensation for damages.

Equally important, public opinion and consumer expectations create a normative force to deal honestly with customers. Companies that ignore this risk public backlash and a loss of trust, which can threaten the existence of young companies in particular. A legally compliant contract drafting for software development is a proactive step in this direction.

A fair pricing strategy means being legally compliant, clearly communicated, balanced in terms of price and performance, and in line with the company’s values. Start-ups that focus on transparency and fairness from the outset stand out positively and need not fear serious competition, as satisfied customers remain loyal. The article on IT contract law for start-ups also emphasizes these principles.

This report has shown that law and morality are intertwined here. Law sets minimum standards, prohibiting deception, usury, discrimination, and child advertising, among other things. Morality can go beyond this and offer guidelines, such as “only take what is fair, not what would be the maximum possible.” Great business personalities like Henry Ford and thinkers like Peter Drucker recognized that long-term success is based on decency: quality, fair prices, and good treatment of employees and customers. In the digital age, this applies more than ever, as any misconduct is publicized on the Internet, and consumers have global choices.

For a lawyer advising start-ups, this means an exciting dual role. On the one hand, there is the classic compliance task of protecting the company from legal pitfalls. This includes UWG violations in pricing, antitrust risks, and GDPR or transparency obligations in pricing algorithms and general terms and conditions. On the other hand, they can serve as a strategic sparring partner by contributing their knowledge of regulatory trends, such as possible loot box regulation or stricter consumer rights, and best practices. This helps the startup develop a robust, trustworthy pricing strategy. The lawyer can raise questions such as: “Is your freemium model perhaps too good to be true? What happens if you have to monetize in a year – will you alienate your users? Shouldn’t we charge moderate prices now, but be honest about what for?” Such considerations go beyond legal paragraphs and touch on business strategy, proving extremely valuable. A good lawyer embraces innovative business models and can offer crucial strategic advice.

In the end, honesty pays off: Legally, because it offers less scope for attack, and economically, because it builds trust with customers and partners. A modern start-up that embraces these principles will not only be legally compliant in the short term but will also be respected as a fair player in its industry in the long term, an advantage that money can hardly buy.