Phillip Is Meeting with His Supervisor, Karen

question 86

Multiple Choice

Phillip is meeting with his supervisor, Karen. Their company has just developed a new product that they think has strong market potential. However, just last week their top competitor announced that it was launching a similar product. Phillip and Karen are trying to come up with a counter-strategy to make sure their competitor does not gain market share. Karen recommends that they price their product really low, so low that their competitor will not be able to compete. Because this product is priced toward price-conscious consumers, their target market is likely to view prices as highly attractive. Phillip maintains that they will lose too much money if they price the new product that low. It is not sustainable. Karen suggests that they only price the product extremely low to drive their competitor out of that particular market. After their competitor has left the market, then they can raise prices once again. Phillip tells Karen he is not sure this is legal if their sole intent is to drive out the competition. He informs Karen that this is a type of

• A) predatory pricing.
• B) price gouging.
• C) price discrimination.
• D) price fixing.
• E) deceptive pricing.

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Definitions:

Yield Curve

A graphical representation showing the relationship between the interest rates of bonds of identical quality but different maturity dates.

Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Par Value

The nominal or face value of a bond, share of stock, or other financial instrument, as stated by the issuer.

Yield to Maturity

The anticipated full income on a bond, provided it is held through to its expiration date.