Chapter 11 (Pricing Strategies for Firms with Market Power)

Question 1

Price discrimination

Answer 1

The practice of charging different prices to consumers for the same good or service

Question 2

Two-part pricing

Answer 2

Pricing strategy in which consumers are charged a fixed fee for the right to purchase a product, plus a per-unit charge for each unit purchased

Question 3

Block pricing

Answer 3

Pricing strategy in which identical products are packaged together in order to enhance profits by forcing customers to make an all-or-none decision to purchase

Question 4

Profit-maximizing price for block pricing

Answer 4

The total value the consumer receives for the package

Question 5

Commodity bundling

Answer 5

The practice of bundling several different products together and selling them at a single “bundle price”

Question 6

Peak load pricing

Answer 6

Pricing strategy in which higher prices are charged during peak hours than during off-peak hours

Question 7

Cross-subsidy

Answer 7

Pricing strategy in which profits gained from the sale of one product are used to subsidize sales of a related product

Question 8

Transfer pricing

Answer 8

Pricing strategy in which a firm optimally sets the internal price at which an upstream division sells an input to a downstream division

Question 9

Price matching

Answer 9

A strategy in which a firm advertises a price and a promise to match any lower price offered by a competitor

Question 10

Randomized pricing

Answer 10

Pricing strategy in which a firm intentionally varies its price in an attempt to “hide” price information from consumers and rivals.