Question 1

Rubrix, a leading animation and gaming company, launches its video game console at an introductory price of $189.00, which is relatively low for products of this category. The reasoning behind this low pricing is that Rubrix expected fierce competition to move in rapidly. Also, the demand for video game consoles varied according to the price sensitivity of prospective customers. Identify the pricing policy used here.

Accepted Answer

Rubrix is using a penetration pricing strategy by setting a low initial price to quickly gain market share in the face of expected competition. This strategy is aimed at encouraging customers to try and ultimately prefer their product over the competition.

Question 2

Price discrimination, which lessens competition or is deemed injurious to it, is outlawed by the _____ Act.

Accepted Answer

The Robinson-Patman Act is specifically focused on price discrimination and prohibits it if it results in lessening competition or is deemed injurious to it. The other options listed do not specifically address price discrimination.

Question 3

For which of the following products is a seller most likely to use a going-rate pricing strategy?

Accepted Answer

A going-rate pricing strategy is most commonly used for products that are commodities, such as whole milk. It involves pricing a product at a level that is comparable to what competitors are charging in the market. This is because customers are likely to switch to a competitor if a seller charges significantly more than what other sellers are charging for the same product. Sports cars, wedding apparel, and designer furniture are not typically considered commodities and therefore may require a different pricing strategy.

Question 4

In the context of government regulations, which of the following is the primary device used to outlaw horizontal price fixing?

Accepted Answer

The Sherman Antitrust Act is the primary device used to outlaw horizontal price fixing. This act prohibits contracts, conspiracies, and combinations among companies that would unreasonably restrain trade or commerce in the marketplace. Horizontal price fixing occurs when competing firms agree to collectively raise or fix prices, which can lead to less competition and higher prices for consumers.

Question 5

Deceptive pricing practices are outlawed under the _____ Act.

Accepted Answer

The Federal Trade Commission Act prohibits unfair or deceptive acts or practices in commerce, which includes deceptive pricing practices.

Question 6

Exclusivez, a leading jeweler, offers a pair of diamond earrings for only $2000, a price that is 40 percent lower than that of its competitors. Exclusivez aims to use this strategy to drive its competitors out of business and become the market leader in diamond jewelry. This is an example of _____.

Accepted Answer

The answer of Exclusivez, a leading jeweler, offers a pair...

Question 7

Marking merchandise with an exceptionally high price and then claiming that the lower selling price actually used represents a legitimate price reduction, is an example of _____.

Accepted Answer

This practice is known as deceptive pricing, as it misleads consumers into thinking they are getting a good deal when in reality, they are not.

Question 8

Which of the following is an environmental influence on pricing decisions?

Accepted Answer

Government regulations are an environmental influence on pricing decisions as they can impose taxes, tariffs, and other restrictions on pricing strategies of businesses. Price elasticity is a demand-side factor, demographic conditions are market-specific, and psychological factors are another type of demand-side influence.

Question 9

Which of the following is an example of an environmental influence on pricing decisions?

Accepted Answer

The answer of Which of the following is an example...

Question 10

Which of the following is most likely to be a reason for a firm to price a product above competition?

Accepted Answer

If the firm is a price leader in the industry, it is able to set a price above the competition and still maintain market share. This strategy may be used if the firm has established a reputation for high quality or if it has unique features that distinguish it from its competitors.

Question 11

Leverage Inc. and its competitor, Allen Motors Co., were charged for conspiring to keep the end-user price for hatchback cars artificially high. In other words, the two automobile manufacturing companies were charged for:

Accepted Answer

The charge of conspiring to keep the end-user price for hatchback cars artificially high suggests that Leveraged Inc. and Allen Motors Co. came to an agreement to fix prices, which is illegal under antitrust laws. Price fixing occurs when two or more companies agree to set prices at a certain level rather than allowing the market to determine prices. This action is anticompetitive and harms consumers by limiting their choices and increasing prices. Therefore, the correct answer is B) price fixing.

Question 12

In which stage of the general pricing model does a marketer estimate how much of a particular product the target market will purchase at various price levels?

Accepted Answer

Estimating how much of a product the target market will purchase at various price levels is part of the Evaluation of product-price relationships stage of the general pricing model.

Question 13

In the context of product considerations in pricing, a(n) _____ is an approach to pricing in which a seller charges a relatively low price on a new product and is used when demand for the product is, at least in the short run, price elastic.

Accepted Answer

Penetration policy involves setting a lower price to enter a market and gain market share quickly. This strategy is used when demand is price elastic, which means that customers are highly sensitive to price changes. By offering a lower price, the seller can attract price-sensitive customers and establish a foothold in the market, which can later be used to increase prices and profitability. This strategy is often used for new products where there is a lot of competition and getting customers to try the product is important.

Question 14

_____ is an example of pricing below competition, in which the firm is bidding directly against competition for project contracts.

Accepted Answer

Sealed-bid pricing involves the firm bidding directly against competition for project contracts, often leading to pricing below what competitors may have priced the project at. This strategy is commonly used in industries such as construction, where bidding on projects is a common practice.

Question 15

Pricing a product at the average price charged by the industry is called _____ and is popular for homogeneous products.

Accepted Answer

Going-rate pricing involves setting a price based on the average price charged by competitors in the industry, which is popular for homogeneous products. Sealed-bid pricing involves submitting a bid for a project based on expectations of the cost and profit, bundle pricing involves selling multiple products together at a single discount price, and odd-even pricing involves setting the price slightly below a round number.

Question 16

A razor manufacturer introduces its new three-blade razor at a relatively low price to counter competition and to encourage more consumers to purchase it. Through this approach to pricing, the razor manufacturer hopes to create a rapid mass market within a short span of time and obtain large economies of scale. This is an example of _____.

Accepted Answer

The pricing strategy described is a penetration policy, which involves setting a low price to quickly enter the market and gain a large share of customers. This can lead to rapid growth and economies of scale.

Question 17

Herald Inc. is a leading producer of software technology and cloud computing devices. In an attempt to further its goal of innovation, Herald introduces a technologically advanced one-of-a-kind user interface at a relatively high price. By doing so, Herald seeks temporary monopoly until competitors move in. This is a typical example of a(n) _____ policy.

Accepted Answer

The described policy is skimming, which is the practice of offering a product or service at a high price for a limited time in order to maximize profits and establish a temporary monopoly before competitors enter the market. Penetration pricing is when a product or service is offered at a low price in order to quickly gain market share. Odd-even pricing is when products or services are priced at odd numbers to make the price seem lower or even numbers to give the impression of quality. Going-rate pricing is when a product or service is priced according to the prevailing market rate.

Question 18

How is a skimming policy different from a penetration policy?

Accepted Answer

A skimming policy is used to charge a relatively high price on a new product when demand is price inelastic, while a penetration policy is used to charge a relatively low price on a new product when demand is price elastic. Skimming is used to obtain maximum revenue from a small segment of the market before competitors enter, while penetration is used to attract a large market share by charging a lower price.

Question 19

Which of the following kinds of pricing strategies would you expect producers to use for pricing homogeneous products, such as wool, tomatoes, wheat, coal, and bone meal?

Accepted Answer

For pricing homogeneous products, going-rate pricing would be the most appropriate strategy as the prices of these products are generally determined by the market and competitors. Producers cannot charge a premium price for a homogeneous product as customers have the option to choose from multiple suppliers. Penetration pricing and skimming pricing may not be effective as the price of the product is already set by the market, and sealed-bid pricing may not be suitable as the demand for these products is usually constant and predictable.

Question 20

A company tends to use penetration pricing when it:

Accepted Answer

Penetration pricing is a pricing strategy used when a company launches a new product and wants to quickly capture a larger market share. The company sets a relatively low price for its new product to attract customers and gain market share quickly. This strategy is useful when the company expects competition to move in rapidly and wants to establish a customer base before competitors enter the market. Therefore, option C is the correct answer. Option A is incorrect because when the demand is price inelastic, a company can charge a higher price without losing many customers. Option B is incorrect because the company wants to charge a relatively low price in penetration pricing. Option D is incorrect because if a company has a temporary monopoly in the market, it can set a high price without much competition.

Quiz 11: Pricing Strategy