CPP Legal & Ethical Considerations in Pricing 1

Question 1

What is price fixing?

Accepted Answer

Agreement between competitors to set prices at a fixed level.

Answer

Price fixing is an illegal anti-competitive practice where competing businesses agree, either explicitly or implicitly, to set prices for their products or services at a predetermined level. This eliminates price competition, harms consumers by artificially inflating prices, and violates antitrust laws. Such agreements are strictly prohibited to ensure fair market competition.

Question 2

What is predatory pricing?

Accepted Answer

Setting low prices to eliminate competition and raise prices later.

Answer

Predatory pricing is an illegal anti-competitive practice where a dominant company sets its prices extremely low, often below cost, with the intent of driving competitors out of the market. Once competitors are eliminated, the predator can then raise prices to monopolistic levels. This practice is prohibited by antitrust laws because it harms competition and consumers in the long run.

Question 3

What is price discrimination?

Accepted Answer

Charging different prices for the same product or service based on factors such as customer segment.

Answer

Price discrimination is a pricing strategy where a seller charges different prices to different customers for the same product or service, even though the cost of providing it is the same. This differentiation is based on factors like customer segment, willingness to pay, location, or time of purchase. While often legal, it aims to maximize revenue by capturing more consumer surplus from different groups.

Question 4

What is ethical pricing?

Accepted Answer

Setting prices that are fair and reasonable for both the business and customer.

Answer

Ethical pricing involves setting prices that are considered fair, transparent, and justifiable to customers, while also allowing the business to cover costs and achieve a reasonable profit. It avoids exploitative practices like price gouging or misleading pricing. Ethical pricing builds trust and fosters long-term customer relationships, contributing to a positive brand reputation.

Question 5

What is deceptive pricing?

Accepted Answer

Advertising a lower price than what is actually charged or offering misleading discounts.

Answer

Deceptive pricing refers to practices that mislead customers about the true cost or value of a product or service. This can include advertising a price that is not actually available, hiding additional fees, or presenting false discounts. Such practices are unethical and often illegal, as they undermine consumer trust and violate consumer protection laws.

(CPP) Certified Pricing Professional Practice Test

(CPP) Certified Pricing Professional Practice Test

CPP Legal & Ethical Considerations in Pricing 1