A pharmaceutical company faces a price regulation where it cannot charge any higher than $5,000 for a lifesaving drug.The company knows that the patients put a high value on this product and are willing to pay up to $10,000 for it.The company decides to sell the drug at $5,000 but requires the patients to purchase periodic blood testing from them for $5,000.This is an example of

Question

​A pharmaceutical company faces a price regulation where it cannot charge any higher than $5,000 for a lifesaving drug.The company knows that the patients put a high value on this product and are willing to pay up to $10,000 for it.The company decides to sell the drug at $5,000 but requires the patients to purchase periodic blood testing from them for $5,000.This is an example of

Quizplus · Accepted Answer

Tying is when a company requires customers to purchase one product in order to receive or use another product. In this case, the pharmaceutical company is tying the purchase of the drug to the purchase of periodic blood testing. This allows them to charge the full $10,000 that patients are willing to pay, while still technically conforming to the price regulation by only charging $5,000 for the drug. Bundling, on the other hand, is when a company offers two or more products or services together at a reduced price compared to purchasing them separately. This is not the case in this scenario as the blood testing is being sold at the same price as the drug. Fraud is not applicable as the company is following the price regulation, albeit in a potentially exploitative manner through tying. Therefore, the best choice is A) Tying.

​A Pharmaceutical Company Faces a Price Regulation Where It Cannot

A Pharmaceutical Company Faces a Price Regulation Where It Cannot