CPP Legal & Ethical Considerations in Pricing 3 — Questions and Answers
Question 1: The concept of 'zone pricing' by fuel distributors has faced legal scrutiny primarily because it may:
- Violate environmental regulations
- Constitute price discrimination that harms competing buyers in higher-priced zones (Correct answer)
- Exceed FTC-mandated price caps in certain states
- Conflict with OPEC pricing agreements
Correct answer: Constitute price discrimination that harms competing buyers in higher-priced zones
Zone pricing can raise Robinson-Patman concerns when it results in competing retailers paying different wholesale prices, potentially disadvantaging those in higher-priced zones.
Question 2: A SaaS company charges enterprise clients $50,000/year and small businesses $500/year for the same software. This pricing structure is most defensible under which legal/ethical rationale?
- It is illegal price discrimination regardless of justification
- Value-based differentiation tied to differing value received and ability to pay (Correct answer)
- It constitutes tying arrangement under antitrust law
- It requires FTC approval as a promotional pricing scheme
Correct answer: Value-based differentiation tied to differing value received and ability to pay
Charging different customer segments prices commensurate with the value they receive is a well-established and legally defensible pricing practice.
Question 3: Which government agency has primary jurisdiction over deceptive pricing practices in US consumer markets?
- Securities and Exchange Commission (SEC)
- Federal Trade Commission (FTC) (Correct answer)
- Consumer Financial Protection Bureau (CFPB)
- Department of Justice (DOJ)
Correct answer: Federal Trade Commission (FTC)
The FTC has primary authority to regulate unfair or deceptive acts and practices in commerce, including deceptive pricing under Section 5 of the FTC Act.
Question 4: A retailer advertises a product as 'Was $200, Now $99' but the item was never actually sold at $200. This practice violates which pricing regulation?
- Robinson-Patman Act
- Sherman Antitrust Act
- FTC's Guides Against Deceptive Pricing (Correct answer)
- The Lanham Act
Correct answer: FTC's Guides Against Deceptive Pricing
The FTC's Guides Against Deceptive Pricing specifically prohibit false reference prices or fictitious 'former prices' used to inflate the apparent savings.
Question 5: In the context of CPP ethics, 'price gouging' most typically occurs when:
- A firm raises prices by more than 5% in any quarter
- Sellers exploit consumer vulnerability during emergencies by charging excessive prices (Correct answer)
- A company charges more than competitors for the same product
- Premium pricing is applied to luxury goods
Correct answer: Sellers exploit consumer vulnerability during emergencies by charging excessive prices
Price gouging refers to exploiting emergencies or disasters to charge unconscionably high prices for essential goods, which is illegal in many US states.
Question 6: Which of the following best describes the 'rule of reason' standard used in some antitrust pricing cases?
- Pricing practices are illegal only if they result in consumer harm exceeding $1 million
- A court evaluates the actual competitive effects of a practice before ruling it illegal (Correct answer)
- Companies must demonstrate prices are reasonable relative to production costs
- The DOJ must prove intent before bringing a pricing case
Correct answer: A court evaluates the actual competitive effects of a practice before ruling it illegal
Under the rule of reason, courts analyze the actual pro-competitive and anticompetitive effects of a practice rather than declaring it illegal per se.
Question 7: A pharmaceutical company charges $50,000 for a drug in the US and $500 in a developing country. Which statement most accurately describes the ethical dimensions of this pricing?
- This is inherently unethical because it violates equal treatment principles
- It can be ethically justified if it enables broader access while sustaining R&D investment (Correct answer)
- It is illegal under the Sherman Act as price discrimination
- It is ethical only if the developing country government approves the pricing
Correct answer: It can be ethically justified if it enables broader access while sustaining R&D investment
International differential pricing can be ethically defensible when lower prices in low-income markets expand access while higher prices in wealthier markets fund continued R&D.
CPP Legal & Ethical Considerations in Pricing 3
The concept of 'zone pricing' by fuel distributors has faced legal scrutiny primarily because it may: