Question

Consider the following pricing practices.

Match the below descriptions with the appropriate pricing practices A. Price discrimination. B. Peak-load pricing. C. Price gouging. D. Price fixing. E. Dumping. F. Predatory pricing.
1. Charging a higher price for a product/service when there is limited availability of the product/service (demand is greater than supply). 2. When two or more competitors agree to set prices at a given level, usually higher than equilibrium price. 3. Charging a different price to different consumer segments for the same product/service. 4. Intentionally selling products at prices that are lower than their costs to drive out competition. 5. Selling products at a lower price internationally than in the home country. 6. Taking advantage of consumers in need by charging them excessively high prices for basic items.

Answer 1

The pricing practices are matched with descriptions as follows: Price gouging to limited availability pricing, price fixing to competitors setting agreed prices, price discrimination to varying prices for consumer segments.

Step-by-step explanation:

The pricing practices described can be matched as such:

1. Price gouging: Charging a higher price for a product/service when there is limited availability of the product/service (demand is greater than supply).
2. Price fixing: When two or more competitors agree to set prices at a given level, usually higher than equilibrium price.
3. Price discrimination: Charging a different price to different consumer segments for the same product/service.
4. Predatory pricing: Intentionally selling products at prices that are lower than their costs to drive out competition. This practice often occurs when an existing firm reacts to a new firm by dropping prices very low to drive the new firm out of the market.
5. Dumping: Selling products at a lower price internationally than in the home country, sometimes considered a form of predatory pricing.
6. Peak-load pricing: Taking advantage of consumers in need by charging them excessively high prices for basic items.

Predatory pricing, such as the case with American Airlines potentially lowering prices in response to a new competitor, is typically identified when a firm sells below its average variable costs. However, it can be challenging to differentiate between predatory pricing and competitive market actions. In some cases, such as when foreign firms engage in dumping, this strategy involves selling products below production costs to drive domestic competitors out of the market, only to raise prices later.