Clove, a fitness centre, opens a new gym in Boston. Two gyms already exist around the same locality. To attract customers and drive its competitors out of business, Clove, offers a very low enrolment and monthly fee. The owners of the other gyms meet with the director of Clove to negotiate. Finally, all three gyms collude and decide to fix a standard enrolment and monthly fee that customers will have to pay. They also decide to charge a higher fee for men because they spend greater time in the gym.
-All the gyms collude and decide to control the enrolment and monthly fee payable by customers.This is an example of:
A)predatory pricing.
B)vertical price fixing.
C)horizontal price fixing.
D)price discrimination.
E)bait and switch.

Question

Quizplus · Accepted Answer

This scenario is an example of horizontal price fixing, where competitors collude to fix prices and control the market. By agreeing to charge a standard enrolment and monthly fee and to charge higher fees for men, the gyms are engaging in anticompetitive behavior that restricts consumer choice and harms competition. Additionally, offering a low initial fee to drive out competitors is an example of predatory pricing, but it is not the main focus of the scenario. Bait and switch refers to advertising a low price to lure in customers and then convincing them to purchase a higher-priced product or service, which is not present in this scenario. Price discrimination involves charging different prices to different customers based on a characteristic like gender, which is present in this example, but it is not the main focus.

Clove, a Fitness Centre, Opens a New Gym in Boston