Honesty and fair pricing for start-ups (SaaS, mobile apps and digital services)

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, even though digital goods often have almost zero marginal costs. Both legal requirements and moral and economic considerations set the framework for the pricing strategy. This report provides a comprehensive overview of the legal foundations in Germany and Europe (with a comparison to the USA), discusses moral and socio-economic aspects, highlights industry-specific differences, discusses in-app purchases and virtual goods (e.g. loot boxes) and finally deals with aspects of sustainability and social responsibility. It becomes clear that law and ethics go hand in hand – and that lawyers can not only provide legal advice to start-ups, but also act as strategic sparring partners in order to develop fair and competitive pricing structures.

Legal basis for pricing in Germany and Europe

Limits of pricing under competition law (UWG, PAngV, BGB)

In Germany, companies are generally free to set their own prices, but are subject to important restrictions under fair trading law. The Federal Court of Justice (BGH) formulated this succinctly: “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 that 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 example, it obliges companies to show consumers total prices including taxes and, in the case of discount promotions, to indicate the reference price, i.e. the lowest price in the last 30 days before the discount. This rule – introduced by the EU Omnibus Directive – is intended to prevent retailers from increasing prices for a short time in order to subsequently suggest fictitious discounts. 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.

Information obligations in the BGB/EGBGB also ensure transparency. This applies in particular to consumer contract law (implementation of 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 on “buy”. Hidden costs or surprising fees violate this transparency requirement. In addition, 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”) – in order 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 itself also sets limits to blatant unfairness: extremely excessive prices can be immoral and therefore void (BGB §138). The classic definition of usury is 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 – i.e. when the price is more than twice as high as usual. For example, a locksmith contract for ~518 € for a door opening, the reasonable value of which was approx. 245 €, was declared void as immoral. Without proof of an emergency situation, §138 para. 1 BGB is sufficient in blatant cases: If a price exceeds the usual market remuneration by >100%, there may be a factual presumption of reprehensible conduct. In other words: Anyone who charges twice as much as normal runs the risk of having their contract struck down by the court for breach of morality. Usury is even sanctioned under criminal law (§291 StGB) if, for example, a predicament is deliberately exploited. Although these standards only apply in extreme cases (e.g. emergency situations, ripping off economically inexperienced customers), they show that civil law requires at least a minimum level of equivalence and fairness in prices. Excessive “drought prices” – such as exorbitant prices for water in hot weather – have always been considered unfair.

• Example of price transparency obligations: A SaaS provider that advertises its software as “from €50 per month” must make it clear which services are included and whether, for example, one-off set-up fees or automatic renewals apply. According to the UWG and PAngV, a final price must be stated that includes all mandatory costs. And according to Art. 246a EGBGB, the consumer must be expressly informed about subscriptions or notice periods before the contract is concluded. If such information is concealed, there is a risk of warnings from consumer advice centers.

Antitrust aspects: Market power, monopoly position and price abuse

In addition to fair trading law, antitrust law also 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, in particular by demanding unreasonably high or predatory low prices. However, the hurdle for classifying prices as “abuse” is high. Cartel authorities and courts only intervene in exceptional cases, as the same principle applies here: High profits should be possible as an incentive for innovation. For example, 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 even though there is no competition. In Wetzlar, a water supplier was obliged to reduce its tariffs by ~30% because a comparison with 18 other suppliers showed excessively high prices. The cartel authority was allowed to force a conspicuously expensive supplier to reduce its prices, whereby 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 are at the mercy of a lack of alternatives (no change of supplier possible for water. The legal basis is Section 19 (2) No. 2 GWB, according to which the 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 only intervene 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 – among other things because Edeka had not sufficiently proven the inappropriateness. It is not enough to show that a price has risen sharply; you have to prove that it is excessive in absolute terms (e.g. compared to comparable markets or on the basis of the cost structure). This shows that excessive price cases are rare. Cartel authorities focus more frequently 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 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: 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 in order 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 there is no other purpose than to harm competitors.

Price agreements (horizontal cartels) are of course strictly prohibited (Art. 101 TFEU, Section 1 ARC). Start-ups that agree minimum prices or customer allocation with competitors, for example, are committing 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 data protection: One new aspect is the personalization of prices. This is where consumer law and data protection law come together. 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 (“personalized price”) should enable the customer to classify the offer. Important: Dynamic real-time prices, which vary according to the time of 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 – 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.

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

Comparison: Legal situation and regulatory approaches in the USA

By way of contrast, it is worth taking a look at the USA: in many respects, American law 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 such as 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 shies away from interventions almost completely.

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 (e.g. 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 – enforcement is primarily carried out by the FTC in individual cases or through class action lawsuits by consumers in cases of fraud. Obligations such as 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 is still a voluntary transparency issue in the US, whereas the EU now requires this).

Interesting: Some US states have specific pricing laws, e.g. so-called Unfair Sales Acts, which prohibit sales below cost in certain sectors (similar to the Wal-Mart case in Germany, but which applied nationwide there). 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 a lot of 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 you can act relatively freely when setting prices, but you risk losing your reputation and customer trust if you are perceived as unfair. Misrepresentation (e.g. false strike prices) is also punished there, and monopoly-like practices can become expensive through lawsuits (antitrust litigation) – even without a formal ban on “usurious prices”. The EU/Germany, on the other hand, has a more tightly meshed network of consumer protection regulations that start-ups in the local market must adhere to.

Moral and socio-economic issues in 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 points of discussion are: 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 in with a company’s responsibility towards customers and society?

High prices despite low marginal costs – legitimate business model or moral dilemma?

Many digital products (software, apps, digital content) have hardly any production costs per user after 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 if they are successful. The argument is that if digital goods were sold at cost price alone, there would be no incentive to innovate at all. Peter F. Drucker, the well-known management thinker, wrote: “No apology is needed for profit.” The pursuit of profit is nothing 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 – 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 (e.g. because they consider the provider’s effort to be low), this can affect customer loyalty. Examples: Many users reacted indignantly when pharmaceutical start-ups charged exorbitant prices for medicines that were cheap to produce – legally permissible, but morally questionable. Or when a SaaS platform suddenly increases the fee drastically without any recognizable added value, customers feel left out. 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 the subject of intense debate. Even the scholastics (Thomas Aquinas & Co.) demanded that prices should be equivalent to the service provided and should not exploit any hardship. In modern terms: performance and consideration should correspond, and it is morally questionable if a provider only collects far more than the value of its service thanks to a monopoly position. Although this cannot be absolutely implemented in a market economy – 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 virtual reality tool that is technically brilliant, 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 bring the danger 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 – e.g. open source models or freemium providers that provide many features for free because the additional costs are minimal and they put reach above maximization.

Is there a moral obligation to set fair prices?

Opinions differ as to whether companies have an ethical obligation to price fairly or whether 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) – because that 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: 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 a number of founders consciously opt for fair prices in order to live their values. For example, companies with social or sustainable aspirations (keyword: 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 example, 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.” – “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 (market development) and morally. Ford believed that a product like the car should serve society by giving as many people as possible access to it. He also famously increased the wages of his workers so that they could afford his cars – a holistic consideration of fairness in the value chain.

Peter Drucker, on the other hand, emphasized that profit is necessary, but that it alone does not justify unethical behaviour. 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 cash in on bad practices in the short term and gamble away trust in the long term.

It can even be argued that fair pricing is part of corporate social responsibility (CSR) – because a company that calculates prices in a transparent and balanced manner contributes to a trusting economic culture. It gives customers a fair share of the value created (keyword: 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 very close attention to whether a company lives up to their values. Pricing can become a PR issue here: Let’s think of shitstorms about “rip-off apps” or fierce criticism of games publishers who are seen as greedy. A startup that wants to stand out positively can communicate ethical pricing principles (e.g. “We believe in fair prices – that’s why we avoid non-transparent subscription traps and design our tariffs in such a way that they remain affordable for small customers.”).

This also dovetails with socio-economic considerations: If digital services become central to participation in society (educational tools, communication platforms, etc.), the question arises as to 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 (freemium) to ensure broad accessibility and then earn money from premium functions. This can also be seen as a fair pricing strategy – everyone gets a certain benefit for free, those who want/can do more pay.

At the same time, companies can of course 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 would say that fair pricing does not necessarily mean “cheap”, but reasonable: no usury, but also no ruinous underpricing. In the end, market morality is often enforced by customer behavior – if the majority of customers perceive a pricing 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. But from an ethical perspective, start-ups should bear in mind 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 have the feeling of being ripped off.

Industry-specific differences in pricing and transparency

Not every industry ticks in the same way – pricing at traditional service providers differs to some extent from that in the tech world. It is worth taking a look at areas such as web agencies, hosting providers or consulting service providers, where the question of open pricing and transparency is also raised: 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, which are made up internally 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 sees perhaps 100 hours of work estimated and wonders whether the hourly rate (€150) is justified. Morally, transparency would be desirable – but 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 (e.g. deliberately false information about the hours required), this is permissible. From a legal point of view, this could only be used 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 is according to BGB §650 i.V.m. §Section 632 (3), a cost estimate is not binding, but a significant overrun without notification can lead to the loss of the payment claim, as there may be an ancillary obligation to notify (keyword: 20% exceeded and not reported – depending on court rulings).

Morally, some argue that transparency creates trust. Some freelancers and agencies practice open costing: they tell the client how many hours, what hourly rate, what external costs, etc. have been set, and what profit share has been factored in. This can strengthen the relationship in a long-term partnership – the client sees that the service provider calculates fairly and does not add on any unreasonable profit, for example. In certain sectors (e.g. public tenders, construction projects), an open calculation is sometimes required in order to create comparability. Example: Until recently, the HOAI (Fee Structure for Architects and Engineers) was used in construction planning with fixed fee tables that were intended to ensure a fair wage. This was loosened for reasons of competition law, but still shows the principle of transparency and fairness in remuneration as a regulatory instrument.

On the other hand, there are also arguments against too much transparency: a Manager Magazin article was entitled “When too much transparency hurts” and 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 (“Does it really have to be 10 hours of design? Can’t it be done in 5?”). Psychologically, it can put a strain on the relationship if the customer goes into detail and does not allow the service provider any entrepreneurial freedom. After all, entrepreneurial risk should also be rewarded: perhaps the agency calculates in a buffer in case something goes wrong – if everything goes smoothly in the end, 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 (e.g. energy supply, healthcare), there are often fixed fee scales or upper limits. In free service industries, on the other hand, the market regulates the price. Hosting providers, for example, compete globally, the prices for web hosting are transparently comparable – you can only survive here with fair, competitive prices, otherwise customers will leave. Consulting companies, on the other hand, often sell an intangible product (know-how) and can charge very high hourly rates if their brand allows it (e.g. top strategy consulting €300/h upwards). Is this unfair because the marginal cost of another PowerPoint slide is virtually zero? You 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 – this would also weaken the negotiating position.

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 (e.g. monthly subscriptions, staggered by package). Transparency is often higher here, as prices are publicly displayed on the website. However, SaaS prices are sometimes complicated (different editions, add-ons, 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 operate a policy of price stability for existing customers (grandfathering) in order to create trust – i.e. once you have joined at X conditions, you keep them, even if new customers pay more in the meantime. This is voluntary, but is perceived as fair.

In agency contracts, on the other hand, many customers expect transparency: it is often written into the contract that, for example, an hourly rate of €100 applies and that billing is based on actual time and effort, or that a flat-rate price Y includes such and such services. It is legally important that no misleading cost components are hidden – e.g. an agency may not simply charge for additional services that the customer has not commissioned without prior agreement.

Conclusion in this area: Implicit expectations of fairness vary from sector to sector. A tradesman or locksmith is looked at more closely because end users are often involved and there has been abuse – accordingly, there are guidelines as to what is appropriate and indignation when someone demands €1000 for 5 minutes’ work. In the hip digital agency world, on the other hand, the business client is more likely to accept a high creative fee, but expects professionalism and honesty (no 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 (e.g. billing for 10 hours although only 5 were performed). That would be fraudulent behavior.

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

Mobile games and virtual goods: legal issues regarding 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 – additional content, virtual goods or benefits for real money. Particularly controversial: loot boxes or gacha mechanics, where users pay money to receive a random virtual reward (e.g. random characters, items). These mechanics raise legal questions: Are loot boxes gambling? Which consumer protection and youth protection rules apply? And is aggressive monetization possibly legally restricted?

In-app purchases and gacha mechanics – legal framework and gambling demarcation

Loot boxes/gacha work in a similar way to a slot machine: You buy a “surprise package” and hope to win a rare prize. Critics argue that this is in fact online gambling – after all, it is mainly chance that determines the value of the virtual prize. Game manufacturers, on the other hand, defend themselves against this classification and speak trivially of “surprise mechanics, comparable to freebies”.

Legally, a lot depends on the question: Do the virtual items represent a prize with asset value? According to German gambling law (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 (gambling debts = debts of honor). With loot boxes, the player always receives something (i.e. no total loss), but sometimes only digital “junk”, which he subjectively considers to be worthless – his 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, for example.

Virtual goods as such have no legal monetary value. But 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 – you could have bought it. Some platforms (e.g. Steam Marketplace) allow items to be traded for credit/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 is 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.

However, game operators have reacted: Many prohibit real-money trading of items (black market) in their terms and conditions. In doing so, they formally remove the asset value of the virtual good – it may not have a price in money. If trading does take place, 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, i.e. 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, lootboxes 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 (e.g. obligation to publish the chances of winning, limitations). In Germany, the protection of minors is more likely to be controlled (more on this in a moment).

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 sinks thousands of euros into loot boxes, parents could argue that these contracts are null and void or pending invalidity because minors have 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; but legally it is clear: contracts with children without consent are invalid, especially for in-app purchases. Apple and Google have therefore introduced mechanisms (password request, limits) to prevent unauthorized purchases and refund them in some cases.

Consumer protection and youth protection: children in focus

Children and young people are 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 the fear of missing out) and, of course, mechanics that encourage addictive behaviour. Legally, there is a clear point 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 that is specifically aimed at children and 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 “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).

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 take in-game purchases, chats and loot boxes into account as criteria. This means that a game with explicit loot boxes or uncontrolled chats could be given a higher age rating. The USK, for example, has announced that it will issue corresponding descriptors (“Contains in-game purchases with random elements”). Although this is not yet a ban, a warning for parents and higher age ratings (perhaps “USK 16” instead of “USK 6”) can give developers an incentive to design games that are more suitable for young people. In addition, Section 6 (2) JuSchG generally prohibits children and young people from participating in games of chance with the possibility of winning. This means that if a game is legally classified as a game of chance, minors would not be allowed to participate at all. This is currently not clear, but if the legal situation were to change, many games would have to be approved for 18+ or loot boxes would have to be switched off for U18s.

Aspects such as cost transparency are also important in terms of consumer law: mobile games are often initially “free to play”, i.e. they entice you to play for free, but later require almost mandatory purchases (pay to win) to progress. While the concept itself is not illegal, communication must be honest. If a game is advertised as free, the game-relevant content must not all be hidden behind a paywall, otherwise the advertising would be misleading. Any subscriptions (e.g. VIP memberships, monthly passes) must also be clearly recognizable and easy to cancel (button solution from July 2022: every permanent contract online must offer a cancel button, this also applies to app subscriptions). The 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 – the ethical tensions of virtual goods

Virtual goods have the characteristic that their production hardly costs the provider anything, but the value for the user can be subjectively high (e.g. a rare skin that looks cool, but is actually only a few pixels). Providers argue: We create entertainment and emotion, you can pay for that just like for any service. Critics say: The prices are disproportionate to the real costs and exploit psychological vulnerabilities. Opportunity costs arise for the player if they buy progress instead of grinding for hours (investing time). Providers monetize time savings, which seems legitimate, but of course they often deliberately create a grindy game in order to be able to sell the shortcut – a practice that some find perfidious.

Legally, this area of tension primarily falls under general rules (UWG against aggressiveness and misleading information, protection of minors). Aggressive commercial action could be an accusation if, for example, a game builds up pressure (“This offer disappears in 1:00 minute – buy now!” in a children’s game). The UWG Annex also prohibits creating the false impression that you have won a prize that will only be paid out if you buy a product (some games: “You’ve won 100 coins!” – but to redeem them, you first have to invest money, which would be unfair).

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

The damage to image can lead to regulation: When the debate about loot box addiction boiled over, some major publishers reacted voluntarily. For example, many games now clearly display the probability of loot box content (even mandatory in China). Or games such as 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 – probably in order to have a more family-friendly look. This shows 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 relating to the protection of minors). The following should be mentioned:

• Prohibition of targeting children for purchase (UWG Annex No. 28).
• Prohibition of misleading information about the chances of winning, values, etc. (e.g. if a game suggests false prospects of success with purchases, this would be misleading).
• Control of general terms and conditions: Gag contracts in apps that, for example, completely exclude refunds or take away consumers’ rights could be invalid.
• Button solution & cancel button: Subscriptions in apps must be clearly identified as such and must not be concealed by tricky interface design.
• Protection of minors: Purchase contracts concluded by children without parental consent are invalid – companies would do well to build in mechanisms to prevent such purchases from going through or being authorized to parents in the first place. Otherwise there is a risk of chargebacks and legal disputes.

In addition, 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. So it is an area on the move.

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 is less criticized than gambling boxes). If you do use random mechanics, you should disclose what the odds are and keep children away. A lawyer will check preventively whether, for example, the user guidance in the game store is designed in such a way that no unfair pressure is exerted. They can also advise on how to obtain or at least document parental consent to avoid falling into the trap of ineffective contracts.

Keyword transparency of costs vs. production costs: Some players demand that developers disclose how much it cost to develop an item in order to justify the price – this is economically unrealistic. But what makes sense and is also morally required is to communicate why an in-app purchase is worth the money (e.g. 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 (see “free to play, pay if you like” models in indie games).

Cross-cutting topic: Sustainability, social responsibility and supply chain law

Fair pricing is also 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 Duty of Care Act (LkSG) brings a legal framework into play that initially affects large companies, but may also be relevant for start-ups in the long term – 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 to >3,000 employees (from 2024 >1,000 employees) on human rights and environmental due diligence in their supply chains. Most startups/SaaS companies are significantly smaller and are not formally covered by the law. Nevertheless, they should not ignore the 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 have an impact on 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, you think of raw materials, factories, transportation. For digital services, the supply chain is more in areas such as: Data centers (server hardware, power), possibly hardware manufacturing, or content moderation outsourced to countries with cheaper labor. Example: An AI startup has training data labeled in Kenya – this is part of the supply chain where working conditions are relevant. Although the LkSG only formally obliges large companies, a responsible startup will voluntarily check whether there are human rights risks in its value chain (e.g. exploitation of crowdworkers, conflict minerals in servers). If so, it should take countermeasures (choose other suppliers, contracts with minimum standards, etc.).

Pricing and supply chain responsibility are linked in that extremely low prices are often only possible through exploitation in 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 (coal instead of green electricity) or personnel (low wages for support staff). However, sustainable business requires that true costs are taken into account – i.e. a price is calculated 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 (environment, people). A fair price can therefore mean two things: fair for the customer and fair for everyone involved in the product.

Combining fair pricing and sustainable business practices

Fair pricing can be extended to the entire value chain: in the fair trade sense, it means that suppliers and employees are also paid fairly, that environmental costs are taken into account and that profits are not maximized unilaterally at the expense of others. An example from the traditional economy: a textile manufacturer that only demands 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 mean that it may pay little tax (tax avoidance) or use dirty electricity to save costs – which then generates environmental follow-up costs.

More and more companies are trying to act in a holistically sustainable manner. 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, no excessive margins on essential products, or special discounts for disadvantaged groups. For example, some SaaS start-ups offer special conditions for non-profit organizations or developing countries, which can be seen as socially responsible pricing.

Transparency – a core principle of CSR – also has a place in pricing. In the sustainability scene, for example, there are companies that practice “open book pricing”: they disclose how the price is made up (material, wages, 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 are adopting this concept 1:1, it shows the trend towards involving customers more closely and taking them along honestly.

A sustainable digital business model also ensures that prices are sustainable in the long term – dumping prices that later have to be drastically increased frustrate customers (see many online services that were initially free and then introduced monetization). Here you can see that fairness and sustainability in the economic sense also mean finding a price that is reasonable today and tomorrow, instead of short-sighted bait offers with subsequent price shocks.

Corporate Social Responsibility (CSR) in the digital context

CSR in the digital context – sometimes referred to as Corporate Digital Responsibility (CDR) – encompasses various fields: Data protection, ethical use of AI, diversity, environmental friendliness of IT, etc. . Pricing is not one of the classic CSR categories, but is indirectly affected. For example:

• Digital inclusion: A company that wants to act in a socially responsible manner could set prices in such a way that lower-income users are not excluded (e.g. student tariffs, freemium models for basic services).
• Orientation towards the common good: Some start-ups commit to social added value in their articles of association (keyword: purpose company). These will tend not to take pure profit-maximization prices, but rather seek a balance.
• Transparency and customer protection: A CDR-compliant company will clearly indicate in its interface what the customer is paying for, what happens to their data, etc. – all of which is part of honest customer relations.
• Supply chain responsibility: Digital companies can also ensure – voluntarily or under pressure – that their few physical components (servers, offices, devices) are sourced sustainably. This may cost more (e.g. green electricity vs. coal-fired electricity), which in turn flows into pricing. A conscious customer may be happy to pay 5% more to a provider that hosts CO2-neutrally than to one that works cheaply but is harmful to the environment.

Finally, there is the concept of shared value: Companies should do business in a way that benefits both them and society. Fair prices can play a role here – instead of keeping extreme profit margins for itself, a company can, for example, use a portion for social projects or keep prices more moderate in order to give more people access, which also benefits the company (larger market) in the long term.

For the lawyer as a sparring partner, this means that they can help start-ups to strategically reflect on how their pricing strategy is in line with their values and legal obligations. For example, they can point out that greenwashing (advertising sustainably but not acting accordingly) is legally risky – so if you advertise fair prices, there should be substance to it. They can help to establish compliance with the Supply Chain Act at an early stage if the start-up is growing rapidly or serves large customers. And he can classify which CSR promises you can make with a clear conscience without being 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 to make this statement binding (so as not to be considered an empty marketing phrase) and to make it tax/legally clean. At the same time, this is part of the brand story, which he will protect legally (brand, terms and conditions clause, what happens if losses are made – do you still have to donate?) 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

Conclusion: Honesty and fairness in 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. But just as importantly, public opinion and consumer expectations create a normative force to deal honestly with customers. Companies that ignore this risk shitstorms and a loss of trust, which can threaten the existence of young companies in particular.

A fair pricing strategy means: 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, because satisfied customers remain loyal.

The report has shown that law and morality are intertwined here: Law sets minimum standards (prohibition of deception, usury, discrimination, child advertising etc.), morality can go beyond this and offer guidelines (e.g. “Only take what is fair, not what would be the maximum possible”). Great business personalities such as Henry Ford or thinkers like Peter Drucker have recognized that long-term success is based on decency – quality, fair prices, 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 can choose globally.

For a lawyer advising start-ups, this means an exciting dual role: on the one hand, the classic compliance task of protecting the company from legal pitfalls – be it UWG violations in pricing, antitrust risks in pricing or now GDPR/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 (e.g. possible loot box regulation, stricter consumer rights) and best practices to help 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 paragraphs and touch on business strategy, but they are extremely valuable.

In the end, honesty pays off: Legally, because you offer less scope for attack, and economically, because you gain the trust of customers and partners. A modern start-up that takes these principles to heart 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 can hardly be outweighed by money.