PRICING

Melissa is eager to visit a local department store after seeing an advertisement for a great deal on new mattresses. When she gets to the store, however, the salesperson explains that the on-sale model quickly sold out, and attempts to sell her a much more expensive mattress. This is an example of A. predatory pricing. C. price discrimination. B. bait-and-switch advertising. D. price fixing.

Bait-and-switch advertising. Bait-and-switch advertising is an unethical and fraudulent sales method in which a store advertises extremely low prices, and then attempts to sell customers different products at higher prices once they visit the store. The purpose of the tactic is to get customers to visit a business in the hopes that they will make a purchase, even if it's not the exact item that they wanted. Predatory pricing is the act of setting prices low in an attempt to eliminate the competition. Price discrimination occurs when a business charges different customers different prices for similar amounts and types of products. Price fixing is an agreement among competitors to "fix," or set the price, for a product so that it is the same among all the stores. All of these methods are unethical and illegal.

Predatory pricing is an unethical business practice because it can create economic conditions in which A. consumers pay higher property taxes. B. consumers have fewer choices. C. small businesses gain significant profits. D. small businesses control market conditions.

Consumers have fewer choices. Predatory pricing is the practice of pricing goods extremely low with the goal of driving the competition out of business. If a company forces its competitors out of business, consumers have fewer items from which to choose or fewer places to purchase goods. Predatory pricing practices might leave fewer choices for consumers, but they do not necessarily lead to higher property taxes. Small companies are often the businesses that are most affected by predatory pricing.

Business competitors who discuss their costs and the amount of markup on their products may be involved in A. flexible pricing. B. variable pricing. C. price lining. D. price fixing.

Price fixing. Price fixing is an illegal business agreement in which businesses agree on prices of their goods or services, resulting in little choice for the consumer. Businesses that discuss their costs, markups, and prices with competing businesses may be involved in price fixing. In order to avoid possible price-fixing charges, businesses should not discuss any pricing issues with competitors. Variable pricing involves changing prices according to demand. Price lining is the practice of selling goods/services at a limited number of predetermined price points. Flexible pricing involves charging different customers different prices.

In which of the following situations might loss-leader pricing be illegal: A. Customers pay a premium. B. Businesses make a large profit. C. Products are sold below cost. ** D. Competitors match the price.

Products are sold below cost. Loss-leader pricing involves selling products near or below cost. In some situations, laws prohibit the use of loss-leader pricing if the products are sold below cost. The reason is that the prices may be so low that competition is eliminated. However, the laws governing loss-leader pricing are seldom enforced because customers benefit from the low prices. Businesses often do not make any profit on loss-leader pricing because the purpose of that tactic is to attract customers who then will buy additional items at the regular price. Customers do not pay a premium when buying loss-leader items. Competitors often match the loss-leader price or try to beat it.

What do both buyers and sellers want to receive when exchanging goods and services for a specific price? A. Credit C. Profit B. Value D. Prestige

Value. Both buyers and sellers want to feel that they are receiving value when exchanging goods and services for a specific price. Buyers want low prices and to make sure that they are making the best use of their money. Sellers want the highest prices that will still attract the most buyers. Prices should be set so that they satisfy both buyers and sellers in order for both to get the most value from the transaction. Buyers and sellers do not expect to receive credit or prestige when exchanging goods and services for a specific price. Only sellers want to make a profit from sales transactions.

The price function often influences the place function by determining A. how the product is advertised. B. why the product is shipped. C. where the product is sold. ** D. when the product is made.

Where the product is sold. The place function involves shipping, handling, and storing of items and determining when and where they will be available. Pricing affects the place decision by determining where the product is sold. Products with high prices usually are sold in stores that carry expensive items, while products with low prices often are sold in other types of stores, such as discounters. The price function does not influence the place function by determining why the product is shipped, how the product is advertised, or when the product is made.