When a Competitor Cuts Its Price, a Company Should ________

question 122

Multiple Choice

When a competitor cuts its price, a company should ________ if it believes it will not lose much market share or would lose too much profit by cutting its own prices.

• A) reduce its production costs
• B) reduce its marketing costs
• C) maintain its current prices and profit margin
• D) increase its marketing budget to raise the perceived value of the product
• E) increase its production costs to improve the quality of the product

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Definitions:

Simultaneous Consumption

A characteristic of services that indicates they are consumed at the same time as they are produced.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, as the scale of production and the quantity of output increase.

Price Discrimination

A pricing strategy where a seller charges different prices for the same product or service to different consumers, based on market segments, capacity to pay, or purchasing contexts.

Monopoly Power

The ability of a monopolist to significantly control market price or exclude competition in a particular market.