Question 1

What methods might a firm use when pricing based on a profit orientation and how do they differ?

Accepted Answer

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Question 2

When Colleen shops at R.F. Malloy, each item has the actual price listed at the bottom of the price tag and an "original price" listed above that which is always much higher. This "original price" is an example of

Accepted Answer

The "original price" listed above the actual price on the price tag is a reference price, which is used to create a perception of a good deal for the customer. The higher "original price" makes the actual price seem like a bargain, even though the "original price" may not necessarily reflect the true value of the item.

Question 3

In an effort to build sales for their new running shoes quickly, Sprinters Inc. set the initial price of the shoes very low. What type of pricing does this reflect?

Accepted Answer

Market penetration pricing is a strategy where a company sets a low price for its product in order to quickly gain market share and attract customers from its competitors. This is often used for new products or new markets.

Question 4

A reference price might be considered deceptive if

Accepted Answer

A reference price may be considered deceptive if it has been inflated or is fictitious, making it misleading to consumers. The other options do not necessarily indicate deceptive practices.

Question 5

Suppose that a friend asks you to drive him to the airport this weekend so he can catch a flight. He pays you for the gas used driving to the airport, and for the cost of parking the car at the airport while you help him in with his bags. He then declares that you are now "even," since he has fully compensated you for any costs you incurred in helping him get to his flight. From your perspective, what aspects of the "price" of taking your friend to the airport has he omitted?

Accepted Answer

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Question 6

What is an accurate description of predatory pricing?

Accepted Answer

Predatory pricing is illegal in the United States under both the Sherman Antitrust Act and the Federal Trade Commission Act. This occurs when a firm sets a very low price to drive its competition out of business.

Question 7

When members of the marketing channel collude to control the prices passed on to consumers, they are engaging in

Accepted Answer

When members of the marketing channel collude to control the prices passed on to consumers, they are engaging in vertical price fixing. This occurs when manufacturers, wholesalers, and retailers work together to control the prices of products or services, ultimately harming consumers by limiting their ability to find competitive prices. This type of price fixing is illegal under antitrust laws.

Question 8

Production of the DeLorean car, made famous in the film Back to the Future, never got above 25,000 units during its lifetime. Automobile industry analysts estimate that production of this car needed to reach around 300,000 units to achieve the ________, which refers to a decrease in unit cost as product volume increases.

Accepted Answer

The experience curve effect refers to the decrease in unit cost as product volume increases due to increased efficiency in the production process and economies of scale. The estimated production numbers needed for this effect to take place for the DeLorean car was around 300,000 units, which was never reached. Choice A (slotting allowance benefit) and Choice E (cumulative bundling benefit) are not relevant to this situation. Choice B (price fixing return) is not a commonly used term in the automobile industry, and Choice C (improvement value effect) does not accurately describe the concept of decreasing unit costs through increased production volume.

Question 9

How can a company find its way out of a market characterized by pure competition?

Accepted Answer

The best choice is to differentiate the product in some way, even by packaging, so customers will see it as distinct. This allows the company to stand out from its competitors and create a unique value proposition for customers. Consistently offering the lowest price may lead to a price war, which can be detrimental to all businesses involved. Increasing or decreasing the amount of available product may not solve the fundamental issue of pure competition. Increasing prices and attracting different, quality-oriented customers is a viable option, but it requires a significant investment in marketing and advertising to reach the desired audience. Differentiating the product is a simpler and more effective approach in the long run.

Question 10

What five components should be taken into consideration when a company is developing its pricing objectives?

Accepted Answer

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Question 11

If all three grocery stores in town decide to charge the same price for a loaf of bread, what type of pricing tactic is being used?

Accepted Answer

Horizontal price fixing occurs when competitors in the same market agree to set the same price for products or services. If all three grocery stores in town decide to charge the same price for a loaf of bread, it is an example of horizontal price fixing.

Question 12

When a firm colludes with other firms to control prices, it is engaging in

Accepted Answer

Price fixing is the act of collusion among market participants to determine the prices of goods or services. It involves an agreement between two or more firms to avoid competing with each other and instead set the price of their products or services at a certain level. This behavior is illegal and can lead to significant harm to consumers, as they are forced to pay higher prices for goods and services.

Question 13

In ________ many firms provide similar products that are considered substitutes for each other.

Accepted Answer

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Question 14

What makes a high\low pricing strategy appealing to sellers?

Accepted Answer

A high/low pricing strategy is appealing to sellers because it attracts two distinct market segments. The high-priced products attract customers who are willing to pay a premium for quality, while the low-priced products appeal to price-conscious consumers. This allows the seller to maximize profits from both segments.

Question 15

There is often only one provider of cable television services in each region of the country: Time Warner is in New York, Comcast is in most of New England, and so forth. When Comcast proposed a plan to buy Time Warner, the purchase ultimately could not be completed, mostly due to concerns that it would have caused Comcast to become an overly large ________ with too much power.

Accepted Answer

A monopolist is a company that has complete control over a market, with no competition. If Comcast were to acquire Time Warner, it could become a monopolist in the cable television industry, which would lead to concerns about anti-competitive behavior and consumer harm.

Question 16

Maria believes that the best way to drive traffic to the store is by offering "buy one, get one free" for bread and orange juice. Two items that almost every customer will want and when they are in the store, they will purchase additional items. What type of pricing strategy does Maria want to use?

Accepted Answer

Maria wants to use a loss-leader pricing strategy, where she offers one or more items at a lower price than normal in order to attract customers to the store, with the hope that they will purchase additional items at regular prices while they are there. The "buy one, get one free" offer is a common example of a loss-leader promotion.

Question 17

If a firm in a purely competitive market can differentiate its product or service, it becomes part of a(n)________ market.

Accepted Answer

If a firm in a purely competitive market can differentiate its product or service, it becomes part of a monopolistic competition market, where there are many firms that sell differentiated products or services but they are not perfect substitutes. This allows firms in this type of market to have some degree of market power and control over the price of their product or service, unlike in a pure competition market where price is determined solely by market forces.

Question 18

Because there are many firms in monopolistic competition markets,

Accepted Answer

In monopolistic competition markets, firms differentiate their products to appeal to specific customer groups. This means that there is competition based on product features rather than price, which allows for a larger number of firms to coexist in the market. Therefore, the many competitors will focus on product differentiation.

Question 19

Cassie stopped by the hardware store because she had seen an ad for 50% off a thermostat. When she got to the store, she was told they didn't have any of those thermostats in stock and wouldn't be ordering more but she could buy a higher-priced Nest thermostat which was supposed to be better anyway. This appears to be a case of

Accepted Answer

This is a classic example of bait-and-switch, where a customer is lured in with an attractive offer only to be sold a more expensive item instead, since the original item isn't available.

Question 20

Which product is most likely to be characterized by pure competition in the United States?

Accepted Answer

Spices are a homogeneous product with many sellers, and consumers have no preference for one seller over another. As a result, the market for spices in the United States is most likely characterized by pure competition.

Quiz 14: Pricing Concepts for Capturing Value