From Cengage Homework (Ch 17) Back to Assignment Attempts: Keep the Highest: /2

Question

From Cengage Homework (Ch 17) Back to Assignment Attempts: Keep the Highest: /2 10. Questionable business practices according to antitrust agencies Complete the following table by indicating whether each of the scenarios describes the concept of tying, resale price maintenance, or predatorny pricing. Resale Price Predatory Tying Maintenance Pricing Scenario Book Bound sells a wide variety of books to retail bookstores. Book Bound recently published two new books: a popular mystery novel and a much less popular history book. Book Bound requires bookstores to buy 15 copies of the history book for every 120 copies of the mystery novel ordered. Televix is a firm that produces televisions. Suppose Televix sells its televisions to retail stores for $930 each and requires those retailers to charge customers at least $960 for each television Heat-Em-Up is the only firm producing grills. It costs $420 to produce a grill, and Heat-Em-Up sells each grill for $950. After Well Done, a new firm with the same costs as Heat-Em-Up, enters the market for grills, Heat-Em-Up starts selling its grills for a price of $330 True or False: All economists believe that predatory pricing is a profitable business strategy. O True O False

Explanation / Answer

PART-1)

1) Solution: Tying

Explanation: Typing happens when a producer offers two goods together to retailer at a single price instead of separate prices. By bundling two books together Book Bound is forcing retail book stores to purchase both books.

2) Solution: Resale Price Maintenance

Explanation: Resale price maintenance happens when producer enters contractual agreement with retailer that they are not permitted to sell their product less than a fixed amount. As Televix requires its retailers to charge the customers a minimum price of $960 it is engaged in resale price maintenance

3) Solution: Predatory pricing

Explanation: Predatory pricing happens when a firm sells a product or service at a price below cost with the intention of competitors firms out of business. Heat-Em-up is selling its product lesser than cost to keep rival firms out of business.

PART-2) Solution: False

Explanation: Predatory pricing happens when a firm sells a product or service at a price below cost with the intention of competitors firms out of business. It is not beneficial from a long term perspective

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