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.
-When Clove decided to offer enrolment at a very low price, it was with an intention to drive its competitors out of business.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

Predatory pricing is a strategy used by a firm to drive competitors out of business by temporarily setting prices very low. In this scenario, Clove is offering a low enrollment and monthly fee with the intention of driving its competitors out of business. This is a predatory pricing strategy.

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