CPP Legal and Ethical Constraints 3 — Questions and Answers
Question 1: Two companies meet at a trade association conference and agree not to bid below a certain price on government contracts. This is an example of:
- Ethical collaborative pricing
- Bid rigging, a per se antitrust violation (Correct answer)
- Legal price coordination under safe harbor rules
- Defensive price signaling
Correct answer: Bid rigging, a per se antitrust violation
Bid rigging—agreeing with competitors on bids submitted to buyers—is a per se violation of the Sherman Act and is aggressively prosecuted by the DOJ.
Question 2: Which of the following is NOT a recognized legal defense under the Robinson-Patman Act for charging different prices to competing buyers?
- Cost justification
- Meeting a competitor's lawfully set price in good faith
- Functional discounts for different trade levels
- Increasing market share in a new geographic region (Correct answer)
Correct answer: Increasing market share in a new geographic region
Market share growth is not a statutory defense under Robinson-Patman; recognized defenses are cost justification, meeting competition in good faith, and functional discounts.
Question 3: A dominant firm charges different prices to different customer segments based on their willingness to pay. Under which condition does this become legally problematic?
- When it results in higher profits for the firm
- When the price differences injure competition among buyers at the secondary line (Correct answer)
- When it is practiced in more than one geographic market
- When customers prefer uniform pricing
Correct answer: When the price differences injure competition among buyers at the secondary line
Secondary-line price discrimination under Robinson-Patman is unlawful when it materially harms competition among buyers who compete with each other.
Question 4: An industry leader publicly announces planned price increases well in advance. Competitors then follow with identical increases. This 'price signaling' may raise antitrust concerns because it:
- Constitutes explicit horizontal price fixing
- Can facilitate tacit coordination without a formal agreement (Correct answer)
- Violates the Robinson-Patman Act's secondary-line provisions
- Is prohibited by the FTC Act's per se rules
Correct answer: Can facilitate tacit coordination without a formal agreement
Public price signaling can facilitate tacit collusion, which antitrust authorities scrutinize even absent a formal agreement, particularly in concentrated industries.
Question 5: Under the CPP ethical framework, a pricing professional faces pressure to set an unusually high price on a life-saving drug to maximize short-term revenue. The most ethical course of action is to:
- Set the price as instructed since it is legal
- Comply but document the decision for audit purposes
- Raise the ethical concern with management and propose a value-based pricing alternative (Correct answer)
- Immediately report the company to the FTC
Correct answer: Raise the ethical concern with management and propose a value-based pricing alternative
Pricing professionals are expected to raise ethical concerns internally and propose alternatives that balance value capture with stakeholder fairness before taking external action.
Question 6: Which of the following best describes 'zone pricing' and its primary legal risk?
- Pricing identically across geographic zones; risk is leaving money on the table
- Charging different prices in different geographic regions; risk is Robinson-Patman violations if buyers in different zones compete (Correct answer)
- Pricing by customer type; risk is FTC deceptive pricing claims
- Dynamic pricing by time zone; risk is Sherman Act Section 2 monopolization claims
Correct answer: Charging different prices in different geographic regions; risk is Robinson-Patman violations if buyers in different zones compete
Zone pricing charges different prices by geography; it risks Robinson-Patman liability when buyers in different zones compete with each other at the same trade level.
Question 7: A pricing professional learns that her company's algorithm automatically matches any price reduction by a specific competitor within minutes. She is concerned this could facilitate tacit collusion. Her BEST next step is to:
- Continue using the algorithm since it is fully automated and not a human agreement
- Alert legal counsel to evaluate whether the algorithm's behavior raises antitrust concerns (Correct answer)
- Disable the algorithm immediately without informing management
- File a voluntary disclosure with the DOJ
Correct answer: Alert legal counsel to evaluate whether the algorithm's behavior raises antitrust concerns
Automated pricing algorithms can raise antitrust concerns if they facilitate collusive outcomes; the appropriate step is to engage legal counsel for a risk assessment.
CPP Legal and Ethical Constraints 3
Two companies meet at a trade association conference and agree not to bid below a certain price on government contracts.
This is an example of: