Deck 16: International Pricing Strategy

Question 1

Pricing products only minimally above cost does NOT constitute dumping.

Answer 1

False
The United States Department of Commerce considers that dumping takes place even if products are priced only minimally above cost, or at prices below those charged in the producing country.

Question 2

A foreign company that enjoys high prices and high profits at home as a result of trade barriers against imports can use those profits to sell at much lower prices in foreign markets in order to build market share at the expense of competitors with open home markets. This is known as monopoly pricing.

Answer 2

False
The example above is one of dumping, which involves a foreign company that enjoys high prices and high profits at home as a result of trade barriers against imports. The company uses those profits to sell at much lower prices in foreign markets in order to build market share and suppress the profitability of competitors with open home markets.

Question 3

Price discrimination by the manufacturer has been identified as a main cause of parallel importing.

Answer 3

True
Differential pricing (price discrimination) by the manufacturer is a main cause of parallel imports or gray markets.

Question 4

The European Commission, in charge of anti-dumping regulation in the European Union, requires a vote of the Council of Ministers for action against dumping activity and other unfair trade practices.

Question 5

Companies can and often do price themselves out of the market in certain countries.

Question 6

Even if price discrimination is found to occur, the World Trade Organization condemns responding through anti-dumping duties as being noncompetitive and contrary to world trade.

Question 7

According to the World Trade Organization, dumping should be condemned if it threatens to cause injury to an established industry in a particular market and/or if it delays the establishment of a viable domestic industry.

Question 8

The United States Department of State is the government branch responsible for determining whether products are dumped on the U.S. market.

Question 9

In Romania and Turkey, it is a good idea to price product using even pricing.

Question 10

The Export-Import bank, the government branch responsible for determining whether products are dumped on the U.S. market, considers that dumping takes place if products are priced only minimally above cost, or at prices below those charged in the producing country.

Question 11

The World Trade Organization has created a model that determines product costs in state-owned and directed economies that greatly simplifies the once complex process of diagnosing dumping activity.

Question 12

The location of production facilities determines the extent to which a company can control costs and price the products competitively.

Question 13

Governments regulations and restrictions exist with regard to many pricing decisions, ranging from dumping to setting limits on wholesalers' gross margins and on the product's retail price.

Question 14

Thanks to a more strict enforcement of anti-dumping regulations, companies are seldom affected by dumping now.

Question 15

A firm charging the same price to all channel members encourages competition from unauthorized channels.

Question 16

Governments use numerous strategies in their attempts to restrict the repatriation of profits by multinationals. One way that companies can bypass such restrictions is through the use of countervailing pricing.

Question 17

An international company must react to changes in the competitive environment, in the political and legal environment, and in the economic and financial environment, by changing its pricing strategies accordingly.

Question 18

It is difficult for financial officers to keep track of product costs in international marketing.

Question 19

Governments regulate prices charged by multinational firms.

Question 20

In countries like Egypt and Romania a company using even pricing will be at a disadvantage even if it is pricing below competitors' prices.

Question 21

Countertrade is on the increase worldwide.

Question 22

The World Trade Organization has a policy that promotes government-mandated countertrade.

Question 23

The U.S. government supports countertrade for the sale of weapons and aircraft.

Question 24

Transfer pricing is a preferred form of taxation by governments of low-income countries.

Question 25

Countertrade has been traditionally associated with companies from countries in the former Soviet Bloc.

Question 26

Even in unified markets such as the European Union, price differentials exist.

Question 27

Cost-based transfer pricing sets the price based on the cost incurred by the company to make the product.

Question 28

In a counterpurchase agreement, the seller agrees to purchase products that are usually unrelated to its business.

Question 29

A typical countertrade exchange today would involve a buyer from a developed industrialized, country and a seller from a developing country where hard currency is scarce and tightly controlled by national institutions.

Question 30

A clearing agreement involves buying a party's position in a countertrade in exchange for hard currency and selling it to another customer.

Question 31

In many developing countries, even in countries with a greater access to hard currency (primarily due to the export of natural reserves), governments actually mandate countertrade as a form of payment for firms purchasing imported goods.

Question 32

Dynamic incremental pricing is used to avoid dumping challenges.

Question 33

Transfer pricing is viewed as unethical by most international firms and is even illegal in some countries.

Question 34

Barter is the only type of exchange that does not involve monetary exchange.

Question 35

In spite of the obvious advantages of tailoring the price to the budget of the consumer, many companies selling high-end technology products opt for using a standardized pricing strategy.

Question 36

Setting prices internationally tends to be a highly centralized decision.

Question 37

Countertrade practices encourage economic inefficiency.

Question 38

Ministries of Foreign Trade in many developing countries tend to favor light industry imports and to restrict heavy industry imports.

Question 39

Companies thus use a skimming strategy price the product above that of competitors, when competition is minimal.

Question 40

Countertrade agreements often provide a means of speeding up the negotiation process.

Question 41

Which type of currency is accepted for payment by any international seller?

A)Hard currency
B)Soft currency
C)Pegged currency
D)Swing credits

Question 42

Why do low-income countries often criticize the use of transfer pricing?

A)It is a way for firms to evade taxes.
B)The transfer price is often used to dump product on the market.
C)Transfer pricing ignores exchange rates.
D)Transfer pricing depletes much needed soft currency reserves.

Question 43

According to the text, which U.S. industry has recently come under scrutiny by the Chinese government for dumping activity?

A)Pharmaceuticals
B)Newsprint
C)Computers
D)Steel

Question 44

According to the World Trade Organization, dumping should be condemned if it

A)Threatens an established industry.
B)
B)Delays the establishment of a viable domestic industry.
C)a and
D)None of the above.

Question 45

In the late 1960's Pepsi agreed to an exchange of Pepsi syrup and bottling equipment in return for distributing Stolichnaya vodka. This is an example of a:

A)countertrade agreement
B)gray market
C)transfer pricing mechanism
D)product dumping loophole

Question 46

What are countervailing duties?

A)Duties imposed on parallel importers.
B)Duties applied to countertrade transactions.
C)Duties used to counter import quotas.
D)Duties imposed on subsidized products imported into the country.

Question 47

How do regulators decide on whether or not a company is guilty of dumping activity?

A)The value of the product is based on production costs plus reasonable expenses.
B)The price is checked against the price charged within the exporting country.
C)The price is checked against similar products in a third country.
D)Any of the above methods may be used.

Question 48

How can companies bypass profit repatriation restrictions?

A)By having a minority share of the business (i.e., less than 50%).
B)Through effective transfer pricing.
C)By effectively using parallel markets.
D)Through exchange rate management.

Question 49

Why should a manufacturer not use even pricing in Turkey?

A)Even numbers are considered to be unlucky.
B)Even pricing indicates a "cheap" product.
C)Retailers can't "keep the change" if the product is priced using even pricing.
D)It is harder to adjust even pricing in inflationary markets.

Question 50

Which government branch is responsible for determining whether products are dumped on the U.S. market?

A)The Export-Import Bank
B)The U.S. Department of Commerce
C)The Ministry of Finance
D)The U.S. Foreign Trade Office

Question 51

A manufacturer may charge different prices in different markets for the same product. Which reason is not a valid reason for differential pricing?

A)To meet the needs of target consumers who have a limited purchasing power.
B)To reduce the risk of gray markets.
C)To respond to differences in wholesale prices in different markets.
D)To react to changes in the exchange rate in countries where the products are sold.

Question 52

The location of production facilities determines

A)The extent to which companies can control costs.
B)The extent to which companies price their products competitively.
C)Whether the company can benefit from advantageous exchange rates.
D)All of the above.

Question 53

Which of the following have been at the center of anti-dumping action in the past decades for the U.S.?

A)Steel
B)Electronics
C)Textiles
D)All of the above

Question 54

It is often difficult for firms to keep track of product costs. This is attributed to which of the following?

A)Products are assembled in one country and sold all over the world.
B)Product components are manufactured in different countries.
C)None of the above.
D)a and b only.

Question 55

A firm is vulnerable to competition from parallel imports if it

A)Engages in differential pricing.
B)
B)Distributes through unauthorized channels.
C)a and
D)None of the above.

Question 56

Approximately what percentage of total world trade is financed through countertrade transactions?

A)10%
B)20%
C)30%
D)40%

Question 57

In cost-based transfer pricing, which cost is used to determine the price?

A)Fixed costs
B)Marginal costs
C)Total costs
D)Opportunity costs

Question 58

Which type of currency is kept at a high artificial exchange rate, is often overvalued, and is controlled by the national government?

A)Hard currency
B)Soft currency
C)Pegged currency
D)Variable currency

Question 59

What loophole do international firms take advantage of in circumventing anti-dumping laws?

A)They modify their products slightly so as not to permit a direct comparison.
B)They use a cash-based accounting method instead of an accrual-based accounting method.
C)They set prices based on their fixed costs instead of their marginal costs.
D)All of the above are true.

Question 60

A manufacturer may charge different prices in different markets for the same product

A)to meet the needs of target consumers who have a limited purchasing power
B)to keep the product price competitive in markets that are actively targeted by competition
C)due to the fact that it offers discounts to wholesalers buying higher quantities
D)all of the above are reasons why a manufacturer may charge different prices

Question 61

Which of the following is an advantage of countertrade agreements?

A)Countertrade practices encourage economic efficiency.
B)Countertrade allows firms from industrialized countries to sell products in markets that would otherwise be inaccessible.
C)Countertrade agreements often speed up the negotiation process.
D)All of the above are countertrade advantages.

Question 62

In a clearing agreement, when an imbalance occurs and one country owes money to the other, ____ are paid in an agreed upon hard currency.

A)countervailing credits
B)swing credits
C)switch credits
D)clearing credits

Question 63

In which type of countertrade does the exporter agree to buy goods from a shopping list provided by the importer?

A)Barter
B)Switch Trading
C)Counterpurchase
D)Buyback agreement

Question 64

Which type of countertrade involves parallel contracts?

A)Clearing agreements
B)Switch trading
C)Counterpurchases
D)Offset purchases

Question 65

Which of the following justifies setting prices lower in the home country, compared to company prices in the international market?

A)No cost advantages to producing overseas to justify a lower price.
B)Few or no challenges from competition in the international market.
C)Limited market potential of the international market.
D)All of the above justify lower prices in the home country.

Question 66

Penetration pricing is used by companies that

A)are trying to gain a high sales volume
B)are attempting to generate high profit
C)are attempting to recover the cost of product development quickly
D)all of the above

Question 67

Setting prices higher in the home market than in the international market is justified by which of the following?

A)A lower labor or raw material cost in the international market
B)Strong local competition in the international market
C)A lower buying power of host-country consumers relative to consumers in the company's home market
D)All of the above

Question 68

Before the fall of communism in Eastern Europe and before German reunification, Volkswagen sold 10,000 cars to East Germany and agreed to purchase, over a period of two years, goods for the value of the automobiles, from a list of goods provided by the East German government. What type of countertrade does this example describe?

A)Clearing agreement
B)Counterpurchase
C)Offset purchase
D)Buyback agreement

Question 69

Which of the following is an advantage of standardized pricing?

A)It lowers costs.
B)It is a deterrent to gray market activity.
C)It deters parallel imports.
D)All of the above are advantages of standardized pricing

Question 70

Which type of countertrade is the only type of exchange that does not involve monetary exchange?

A)Barter
B)Clearing Agreements
C)Switch Trading
D)Counterpurchase

Question 71

Which of the following is a justification for setting a higher price in the home market than in the international market?

A)There may be few or no challenges from competition in the international market.
B)The market potential might be limited.
C)Buyers in the international market could afford the higher price.
D)The firm may have the goal of increasing international market share through penetration pricing.

Question 72

Why do firms engage in countertrade?

A)Firms in developing countries are unable to secure bank loans.
B)Governments sometimes mandate countertrade as a form of payment.
C)Firms in developing countries lack access to hard currency.
D)All of the above are true.

Question 73

One example of aggressive export pricing is

A)Transfer pricing
B)Dynamic incremental pricing
C)Cost pricing
D)Market pricing

Question 74

Which of the following is not a disadvantage of countertrade?

A)Countertrade practices frequently restrict profit margins.
B)Price setting is difficult because not all cost factors are known in advance.
C)Prices are distorted as deliveries, which could take place over time, are made without reference to changes in technology.
D)Countertrade makes it difficult for consumers in low-income countries to have access to soft consumer goods.

Question 75

McDonnell Douglas sold DC-9s to the former Yugoslavia. To secure the order, McDonnell Douglas agreed to help sell products sourced in the former Yugoslavia to buyers in the United States to generate capital to help finance the purchase of the passenger planes. Of which type of countertrade is this an example?

A)Counterpurchase
B)Barter
C)Switch Trading
D)Offset purchase

Question 76

Approximately how many commercial trade exchanges exist in the United States?

A)40
B)400
C)4,000
D)40,000

Question 77

Which statement regarding countertrade is true?

A)The World Trade Organization supports countertrade.
B)The U.S. condemns all forms of government-mandated countertrade.
C)The U.S. government only interferes in countertrade agreements that involve firms that use U.S. government financing.
D)Developing countries with significant hard currency reserves do not require countertrade agreements.

Question 78

Buying a party's position in a countertrade in exchange for hard currency and selling it to another customer is known as a(n)

A)Counterpurchase
B)Offset purchase
C)Switch trade
D)Buyback agreement

Question 79

According to the text, for which industry does the U.S. government support the use of countertrade?

A)Weapons
B)Computers
C)Textiles
D)Steel

Question 80

ICI sold a methanol plant to the former Soviet Union for $250 million and agreed to purchase 20% of the plant's output for ten years for a total of $350 million. Of which type of countertrade is this an example?

A)Switch trading
B)Counterpurchase
C)Offset purchase
D)Buyback agreement