Question 1

If Happy Campers advertises a 120 day low- price guarantee that will refund any of its customers the difference between the price they paid for a camper and a lower price offered by Happy Campers for the same camper, this is an example of ________.

Accepted Answer

This is an example of a most-favored-customer clause because it ensures that customers who have already purchased a camper will not be disadvantaged if the price of the camper decreases within a specified time frame (in this case, 120 days). They are guaranteed to receive the benefit of the lowest price offered during that period.

Question 2

If Big City Cameras advertises a 90 day low- price guarantee that will refund any of its customers the difference between the price they paid for a camera and a lower price offered by Big City Cameras for the same camera, this is an example of ________.

Accepted Answer

A most-favored-customer clause ensures that a customer receives the best price offered by the seller, similar to the 90-day low-price guarantee described.

Question 3

Most- favored- customer clauses can help support tacit collusion.

Accepted Answer

Most-favored-customer clauses can effectively create a disincentive for rival companies to offer better prices or terms to a particular customer, which can help support tacit collusion among competitors.

Question 4

If Best Office Supply states that it will meet any competitor's price on a 500 pack of copy paper and beat it by 10 percent, this is an example of ________.

Accepted Answer

This is a meet-the-competition clause, which is a pricing strategy used to compete with other businesses by matching or beating their prices.

Question 5

If Big City Appliances is in tacit collusion with three smaller appliance firms and Big City Appliances consistently makes price changes that the other three firms then also make, this is an example of________ by Big City Appliances.

Accepted Answer

This is an example of price leadership, as Big City Appliances is setting the price and the other three firms are following suit.

Question 6

If Fuel is Us is in tacit collusion with four smaller propane delivery firms and Fuel is Us consistently makes price changes that the other four firms then also make, this is an example of ________by Fuel is Us.

Accepted Answer

This is an example of price leadership, where Fuel is Us sets the price and the other firms follow suit. This is a form of tacit collusion, where the firms coordinate their pricing behavior without explicitly agreeing to do so. Meet-the-competition clause and meet-or-release clause are contractual arrangements between suppliers and retailers, while precommitment involves making a binding commitment in advance.

Question 7

If Big City Electronics is in tacit collusion with two smaller electronics firms and Big City Electronics consistently makes price changes that the other two firms then also make, this is an example of ________by Big City Electronics.

Accepted Answer

This scenario is an example of price leadership, where a dominant firm (Big City Electronics) sets prices and the other firms follow suit. This is a form of tacit collusion, where firms cooperate without explicit agreements. The other options listed do not apply to this scenario.

Question 8

Four propane delivery firms have a tacit agreement to charge a service fee of $50 in addition to $5 per gallon of propane. If the firms' cost of propane increases and one of the four firms advertises that it will increase the service fee to $75 and raise the cost of a gallon of propane to $5.50 next month, this is an example of _________ .

Accepted Answer

This is an example of a preannouncement, where a firm publicly announces a future change in pricing strategy before it is implemented.

Question 9

When firms have a tacit collusion agreement, if prices are highly visible, this decreases the cost of cheating.

Accepted Answer

When prices are highly visible, it makes it easier for firms to monitor each other's prices, thereby increasing the cost of cheating because any deviation from the agreed-upon prices is quickly noticed and can be retaliated against, maintaining the collusion.

Question 10

Price visibility can work both for and against tacit collusion.

Accepted Answer

When prices are publicly visible, firms may be more likely to reach a tacit agreement because they can monitor each other's prices and detect any deviations. However, visible prices may also discourage tacit collusion because they increase the likelihood of antitrust scrutiny and consumer backlash against any perceived price-fixing.

Question 11

If Happy Campers is in tacit collusion with four smaller camping firms and Happy Campers consistently makes price changes that the other four firms then also make, this is an example of________ by Happy Campers.

Accepted Answer

This is an example of price leadership, where Happy Campers sets the price and the other firms follow suit, rather than independent decision-making. This can be a form of tacit collusion, where firms coordinate their behavior without explicit communication or agreement. However, it is not a precommitment (A), meet-the-competition clause (B), or meet-or-release clause (D).

Question 12

A common contractual precommitment strategy is________ .

Accepted Answer

The answer of A common contractual precommitment strategy is________ .
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Question 13

If Capital Appliances advertises a 60 day low- price guarantee that will refund any of its customers the difference between the price they paid for an appliance and a lower price offered by Capital Appliances for the same appliance, this is an example of________ .

Accepted Answer

A most-favored-customer clause guarantees customers will receive the best available price, which is what the policy described does by ensuring customers can get a refund if the price drops after their purchase.

Question 14

The primary function of meet- the- competition clauses is to win customers.

Accepted Answer

The primary function of meet-the-competition clauses is to prevent a company's competitors from undercutting their prices or offering better deals to their customers. It is not about winning customers.

Question 15

If Cruise the World advertises a 30 day low- price guarantee that will refund any of its customers the difference between the price they paid for a cruise and a lower price offered by Cruise the World for the same cruise, this is an example of________ .

Accepted Answer

A most-favored-customer clause ensures that a customer receives the best available price if prices are lowered, which aligns with the scenario described.

Question 16

If Mario's pizza states that it will meet any competitor's price on a 12 inch, one topping pizza, this is an example of________ .

Accepted Answer

A meet-the-competition clause is a statement or policy in which a company guarantees to match or beat its competitor's prices. Mario's pizza is stating that they will meet the prices of other competitors on a specific size and type of pizza.

Question 17

Four propane delivery firms have a tacit agreement to charge a service fee of $50 in addition to $5 per gallon of propane. If the firms' cost of propane increases and one of the four firms advertises that it will increase the service fee to $75 next month, this is an example of________ .

Accepted Answer

This is an example of a preannouncement, as one firm is announcing a future change in their fees. It is not a precommitment, as none of the firms are committing to a specific action or plan. It is not price leadership, as only one firm is making the announcement, not all four. It is not a meet-the-competition clause, as there is no mention of any competition or response to it.

Question 18

Tacit collusion is more likely to occur in the commercial airline market than the fast food market.

Accepted Answer

Tacit collusion is more likely to occur in industries with high barriers to entry, a small number of firms, and homogeneous products. The commercial airline market fits these criteria more closely than the fast food market, making tacit collusion more likely.

Question 19

Four propane delivery firms have a tacit agreement to charge a service fee of $50 in addition to $5 per gallon of propane. If the firms' cost of propane increases and one of the four firms advertises that it will increase the cost of a gallon of propane to $5.50 next month, this is an example of ________.

Accepted Answer

A preannouncement occurs when a company publicly announces a future change in pricing or product offerings before it actually happens, as in this case where the firm advertises a future price increase.

Question 20

If Cruise the World is in tacit collusion with three smaller cruise firms and Cruise the World consistently makes price changes that the other three firms then also make, this is an example of ________by Cruise the World.

Accepted Answer

This is an example of price leadership, where the dominant firm (Cruise the World) sets the price and the smaller firms follow suit.

Quiz 7: Cartels and Oligopoly