Question 1

Suppose that a book publisher sells a textbook for $150 each to its domestic distributor. The same publisher sells the same edition of the textbook to a distributor in Thailand for $85 since the affordable prices by Thai students may be much less than in the domestic market. The textbook finds its way back into the domestic market since the Thai distributor sold it back to another marketer who sells in the domestic market for $85. What is this type of pricing known as, and what are the consequences of such transactions to global marketers, if any?

Accepted Answer

The answer of Suppose that a book publisher sells a...

Question 2

If a company manufactures a product in the home-country market as well as in foreign markets it is considered black marketing.

Accepted Answer

Manufacturing and selling products in both the home-country market and foreign markets is a common practice known as international marketing. Black marketing refers to illegal activity such as selling stolen goods or selling products at a higher price than the market value.

Question 3

For positive proof that dumping has occurred in the United States, both ________ and injury must be demonstrated.

Accepted Answer

Price discrimination and injury must be demonstrated to prove dumping, as dumping involves selling goods in a foreign market at a price lower than in the domestic market, causing injury to the domestic industry.

Question 4

"Cost-based," "market-based," and "negotiated" are three approaches to:

Accepted Answer

These three approaches refer to different methods of determining the price of goods or services in transfer pricing, which involves pricing goods or services transferred between different entities within the same company. Cost-based transfer pricing involves setting the price based on the cost of production or acquisition, while market-based transfer pricing uses external market prices as a benchmark. Negotiated transfer pricing involves the parties agreeing on a price through negotiation. None of these approaches are applicable to dumping, gray marketing, price skimming, or counter trade.

Question 5

The European Commission recently fined Nintendo nearly $150 million after it was determined that the video game company had colluded with European distributors to fix prices. Why is price fixing not considered a good practice? What are different kinds of price fixings?

Accepted Answer

The answer of The European Commission recently fined Nintendo nearly...

Question 6

Many countries took issue with the U.S. system of antidumping laws, in part because historically, the U.S. Commerce Department almost always ruled in favor of the U.S. company that filed the complaint.

Accepted Answer

Many countries, including those in the European Union, have criticized the U.S. system of antidumping laws, citing concerns that the Commerce Department's rulings have unfairly favored U.S. companies. However, in recent years, there have been efforts to reform and improve the system to address these criticisms.

Question 7

Nintendo was fined nearly $150 million after it was determined that the video game company had colluded with European distributors. The distributors in countries with lower retail prices had agreed not to sell to retailers in countries with high prices. This is a classic example of:

Accepted Answer

The scenario described in the question is an example of price fixing, where companies collude to set prices at a certain level, thereby limiting competition and unfairly increasing prices in certain markets. Nintendo colluded with distributors to limit the sale of their products in countries with lower retail prices, resulting in inflated prices in other countries.

Question 8

Gray market goods are trademarked products that are exported from one country to another and sold by authorized persons or organizations.

Accepted Answer

Gray market goods are trademarked products that are exported from one country to another and sold by unauthorized persons or organizations, outside of the manufacturer's authorized trading channels.

Question 9

Germany's Bayer Group was fined millions of dollars to settle a lawsuit alleging it had conspired with Archer Daniels Midland and other global companies to set prices for an enzyme used in animal feeds. What was the issue in this lawsuit?

Accepted Answer

The issue in this lawsuit was price fixing, where Bayer Group and other companies conspired to set prices for an enzyme used in animal feeds. As a result, they were fined millions of dollars for violating antitrust laws.

Question 10

When a manufacturer conspires with wholesalers or retailers to ensure certain retail prices are maintained it is known as horizontal price fixing.

Accepted Answer

This scenario describes vertical price fixing, as it involves parties at different levels of the supply chain (manufacturer and retailers/wholesalers) agreeing on price levels. Horizontal price fixing would involve competitors at the same level of the supply chain agreeing on prices.

Question 11

________ occurs when a manufacturer conspires with wholesalers or retailers to ensure certain retail prices are maintained.

Accepted Answer

Vertical price fixing occurs when a manufacturer sets specific prices at which their products must be sold by wholesalers or retailers. This is considered illegal in many countries as it reduces competition and can lead to higher prices for consumers.

Question 12

A global company that uses market skimming as a pricing strategy is likely to invite charges of "dumping" by competitors in host-country markets.

Accepted Answer

Market skimming involves setting high prices initially to target customers who are willing to pay more, whereas dumping involves selling products in a foreign market at lower prices than in the home market, potentially to undercut local competitors, which is a different strategy.

Question 13

Transfer pricing is a term that applies to transactions between different divisions or units of the same company.

Accepted Answer

Transfer pricing refers to the pricing of goods, services or intangible assets transferred between different units or divisions of the same company, often in different countries.

Question 14

In the Uruguay round of GATT negotiations, many countries took issue with the U.S. system of laws, in part because historically the U.S. Commerce Department almost always ruled in favor of the U.S. company that filed the complaint. This was related to the laws pertaining to:

Accepted Answer

The U.S. system of laws in question pertains to dumping, where a company sells goods in a foreign market at a lower price than the price they charge in their domestic market. The U.S. Commerce Department had a history of ruling in favor of U.S. companies that filed complaints related to dumping, leading to concerns among other countries during the Uruguay round of GATT negotiations.

Question 15

It is illegal for representatives of two or more companies to secretly set similar prices for their products. This practice is known as transfer pricing.

Accepted Answer

Transfer pricing is a practice used by multinational companies to internally value goods and services when transferring them between different subsidiaries. It is not illegal as long as the prices set are justifiable and reflect the market conditions. However, if representatives of two or more companies collude to set similar prices for their products, it would be a violation of antitrust laws and is illegal.

Question 16

________ is derived from the price required to be competitive in the global marketplace.

Accepted Answer

Market-based transfer price is the price at which goods, services, or assets are bought and sold between two divisions or subsidiaries within a company. It is determined by the prevailing market price for the same goods, services or assets, so it reflects the price required to be competitive in the global marketplace. Hence, option A is the correct answer.

Question 17

Luxury good marketers found a new way to combat gray market imports into the United States. In March 1995, the U.S. Supreme Court let stand an appeals court ruling prohibiting a discount drugstore chain from selling Givenchy perfume without permission. The distinctive packaging of the perfume is also protected by the U.S. copyright law. The ruling implies that:

Accepted Answer

The ruling prohibits discount drugstores from selling Givenchy perfume without authorization, but it does not prohibit other retailers (such as Costco and Walmart) from selling the perfume with proper authorization from Givenchy. This ruling is specific to Givenchy perfume and its unique packaging, and does not apply to other luxury goods or products.

Question 18

Givenchy and Christian Dior's Dune fragrance are two of the luxury perfume brands that are sometimes diverted from authorized channels for sale at mass-retail outlets. This practice is referred to as:

Accepted Answer

The practice of selling luxury perfume brands at mass-retail outlets through unauthorized channels is known as gray market trading.

Question 19

Joseph Quinlan, chief marketing strategist at Bank of America, estimated that about 25 percent of U.S. merchandise exports represent shipments by American companies to their foreign affiliates and subsidiaries. This situation underscores the importance of ________ in global marketing.

Accepted Answer

This situation underscores the importance of transfer pricing in global marketing as it involves setting prices for goods and services sold between different entities within the same multinational enterprise to optimize tax and maximize profits.

Question 20

GATT and the U.S. Congress have both defined "dumping." What is the difference in their definitions? Why is dumping a major issue in global marketing?

Accepted Answer

The answer of GATT and the U.S. Congress have both...

Quiz 11: Pricing Decisions