Question 1

When sellers set prices after talking to competitors and engaging in collusion,they are involved in ________.

Accepted Answer

Price fixing involves collusion between sellers to set prices at a certain level, which can harm competition and result in higher prices for consumers. This is different from predatory pricing, where a seller intentionally sets prices lower than competitors in order to drive them out of business, and discriminatory pricing, where different customers are charged different prices. Skimming pricing and penetration pricing refer to pricing strategies based on the product's target market and position in the market, rather than collusion between sellers.

Question 2

When Asia Electronics sets its televisions at three price levels of $699,$899,and $1,099,it is using ________.

Accepted Answer

Product line pricing involves setting prices for a range of products within the same category, such as a range of televisions. By setting three different prices for televisions, Asia Electronics is using product line pricing. Market-skimming pricing involves initially setting high prices for a new product, while market-penetration pricing involves setting low prices to quickly penetrate the market. Break-even pricing involves setting prices to cover the costs of producing and selling the product, while target return pricing involves setting prices to achieve a specific target profit. Neither of these strategies seem to apply to the scenario given.

Question 3

Laws exist to prevent unfair ________ by ensuring that sellers offer the same price terms to customers at a given price level.

Accepted Answer

Price discrimination refers to the practice of charging different prices for the same product or service to different customers. Laws against price discrimination aim to prevent sellers from unfairly favoring certain customers over others by offering them lower prices. Other choices may be relevant to discussions of pricing strategies, but they are not directly related to preventing unfair treatment of customers.

Question 4

Mark's Markers,a manufacturer of color markers,has required its dealers to charge a specified retail price for its markers.Mark's is most likely guilty of ________.

Accepted Answer

Mark's Markers is engaging in retail price maintenance, which involves setting a minimum resale price for its products. This limits price competition among dealers and violates antitrust laws. Price fixing and price collusion involve agreements between competitors to set prices, while price discrimination and price skimming involve charging different prices to different customers.

Question 5

When a firm improves the quality and increases the price of a product in reaction to a competitor making a price reduction,the firm is ________.

Accepted Answer

By increasing the quality and price of a product, a firm is positioning its brand into a higher price-value position. This indicates that the firm is focusing on providing superior quality and value to its customers, rather than solely competing on price.

Question 6

A company would most likely consider launching a low-price "fighting brand" in response to a competitor reducing prices if ________.

Accepted Answer

A low-price "fighting brand" is a strategy to compete with a competitor who has reduced prices. This strategy is most effective when the market segment being lost is price sensitive, meaning they are highly influenced by price changes and will switch to a competitor if they offer a lower price. Therefore, the company would consider launching a low-price "fighting brand" in response to a competitor reducing prices if the market segment being lost is price sensitive.

Question 7

_____________ is a core element of a free-market economy.

Accepted Answer

Price competition is a core element of a free-market economy. In a free market, firms are able to set their own prices and compete with each other to attract consumers, leading to lower prices and higher quality products. Predatory pricing, price fixing, skimming pricing, and penetration pricing are all considered anti-competitive practices and are therefore not core elements of a free-market economy.

Question 8

When Polaroid set the general price range of its cameras low and the markup on its film high,it was practicing ________.

Accepted Answer

Captive product pricing involves setting a low price for the main product (camera) and a high markup on the supplies needed to operate it (film), which is what Polaroid did.

Question 9

________ results when a company uses pricing methods that make it difficult for consumers to understand just what price they are really paying.

Accepted Answer

Price confusion arises when a company uses complex pricing methods, discounts, and promotions to confuse customers regarding the actual price they're paying for a product or service. This can lead to the customer mistaking a high-priced product to be cheaper due to multiple discounts or getting confused due to the unclear pricing structure.

Question 10

Price fixing,predatory pricing,retail price maintenance,and deceptive pricing are examples of ________.

Accepted Answer

Price fixing, predatory pricing, retail price maintenance, and deceptive pricing are all examples of pricing practices that raise major public policy issues, particularly around competition and fair business practices. They can harm consumers and competitors in the market, leading to negative economic outcomes. Ethical pricing strategies would not involve these types of practices. The answers C, D, and E are incorrect because they either do not accurately describe the nature of these pricing practices or are too narrow in scope.

Question 11

If a large retailer sold numerous items below cost with the intention of punishing competitors and gaining higher long-run profits by putting those competitors out of business,the retailer would be guilty of ________.

Accepted Answer

This scenario describes predatory pricing, which occurs when a firm intentionally sells products below their cost in order to drive competitors out of business. The goal is to eventually raise prices once competitors have been eliminated, and the firm has gained a dominant market position. This is illegal under antitrust laws. Choice A (price collusion) and B (price fixing) both describe situations where firms work together to set prices, which is also illegal under antitrust laws. Choice D (discriminatory pricing) refers to charging different prices to different customers based on non-cost factors, such as race or gender, and is also illegal. Choice E (penetration pricing) refers to deliberately setting low prices to gain market share when entering a new market, but it is legal and not intended to harm competitors.

Question 12

Price discrimination may be used to match competition as long as the strategy is temporary,localized,and ________.

Accepted Answer

Price discrimination used to match competition should be defensive in nature, meaning it is a response to the actions of competitors rather than an aggressive move to gain market share. It should also be temporary and localized, meaning it should not be a long-term strategy or applied across all channels. Lastly, it should not be published or made public, as this could lead to negative perceptions from consumers and legal issues.

Question 13

Valeo Fashions has just introduced a new line of fashion dresses for teens.It will initially enter the market at high prices in a ________ pricing strategy.

Accepted Answer

The high prices indicate that Valeo Fashions is using a market-skimming pricing strategy, where they enter the market at a high price point and target early adopters and those willing to pay a premium for a new product. This strategy is often used for products with innovative features or high brand equity.

Question 14

Boeing sells its jetliners at about the same price everywhere.This is an example of ________.

Accepted Answer

Boeing selling its jetliners at about the same price everywhere is an example of international pricing, where a company sets a consistent price for its products across different countries.

Question 15

___________ is illegal.

Accepted Answer

Price-fixing, which is the collusion between competitors to set prices at an agreed-upon level, is illegal and a violation of antitrust laws. Price matching, price sensitivity, price elasticity, and price changing are not inherently illegal.

Question 16

Failure to enter the current price into a retailer's system may result in charges of ________.

Accepted Answer

Failure to enter the current price into a retailer's system may result in charges of scanner fraud, which refers to the act of a retailer charging a price different from the one displayed by the scanner at the checkout counter. Predatory pricing involves setting prices low to drive competitors out of the market, retail maintenance pricing refers to the cost of keeping a store in operation, discriminatory pricing is the act of charging different prices to different customers based on their demographics, and price fixing is an illegal agreement between competing firms to set prices. None of these options fit the given scenario.

Question 17

IKEA slashed its prices in China to the lowest in the world.This is an example of a _____________.

Accepted Answer

This strategy is called market-penetration pricing, which involves setting low prices to attract customers and capture market share. By slashing prices to the lowest in the world, IKEA is attempting to penetrate the Chinese market and compete with local players who offer cheaper alternatives.

Question 18

Which of the following would most likely be considered predatory pricing?

Accepted Answer

Predatory pricing occurs when a company sets their prices below cost in order to drive out competitors from the market.

Question 19

Johnson Boats wants to introduce a new model of boat into mature markets in highly developed countries with the goal of quickly gaining mass-market share.As a consultant,you should recommend a ________ pricing strategy.

Accepted Answer

A market-penetration pricing strategy would be the best choice in this scenario as the goal is to quickly gain mass-market share in mature markets. Market-penetration pricing involves setting a low price initially to attract a large number of customers and gain market share quickly. This pricing strategy can be effective in mature markets where there is a high level of competition and customers are price-sensitive. By setting a low price, Johnson Boats can quickly gain customers and establish a foothold in these markets, potentially leading to long-term success.

Question 20

Price discrimination is legal under which of the following conditions?

Accepted Answer

Price discrimination is legal when a seller manufactures different qualities of the same product for different retailers, as it reflects differences in cost or quality.

Quiz 11: Pricing Products: Pricing Strategies