Chapter 16: International Pricing Strategy
TRUE/FALSE
1. The location of production facilities determines the extent to which a company can control costs and
price the products competitively.
2. Companies can and often do price themselves out of the market in certain countries.
3. An international company must react to changes in the competitive environment, in the political and
legal environment, and in the economic and financial environment, by changing its pricing strategies
accordingly.
4. It is difficult for financial officers to keep track of product costs in international marketing.
5. In countries like Egypt and Romania a company using even pricing will be at a disadvantage even if it
is pricing below competitors’ prices.
6. In Romania and Turkey, it is a good idea to price product using even pricing.
7. A firm charging the same price to all channel members encourages competition from unauthorized
channels.
8. Price discrimination by the manufacturer has been identified as a main cause of parallel importing.
9. According to the World Trade Organization, dumping should be condemned if it threatens to cause
injury to an established industry in a particular market and/or if it delays the establishment of a viable
domestic industry.
10. A foreign company that enjoys high prices and high profits at home as a result of trade barriers against
imports can use those profits to sell at much lower prices in foreign markets in order to build market
share at the expense of competitors with open home markets. This is known as monopoly pricing.
11. Pricing products only minimally above cost does NOT constitute dumping.
12. The Export-Import bank, the government branch responsible for determining whether products are
dumped on the U.S. market, considers that dumping takes place if products are priced only minimally
above cost, or at prices below those charged in the producing country.
13. The European Commission, in charge of anti-dumping regulation in the European Union, requires a
vote of the Council of Ministers for action against dumping activity and other unfair trade practices.
14. The World Trade Organization has created a model that determines product costs in state-owned and
directed economies that greatly simplifies the once complex process of diagnosing dumping activity.
15. Even if price discrimination is found to occur, the World Trade Organization condemns responding
through anti-dumping duties as being noncompetitive and contrary to world trade.
16. Thanks to a more strict enforcement of anti-dumping regulations, companies are seldom affected by
dumping now.
17. The United States Department of State is the government branch responsible for determining whether
products are dumped on the U.S. market.
18. Governments regulate prices charged by multinational firms.
19. Governments regulations and restrictions exist with regard to many pricing decisions, ranging from
dumping to setting limits on wholesalers’ gross margins and on the product’s retail price.
20. Governments use numerous strategies in their attempts to restrict the repatriation of profits by
multinationals. One way that companies can bypass such restrictions is through the use of
countervailing pricing.
21. Transfer pricing is viewed as unethical by most international firms and is even illegal in some
countries.
22. Transfer pricing is a preferred form of taxation by governments of low-income countries.
23. Cost-based transfer pricing sets the price based on the cost incurred by the company to make the
product.
24. Countertrade has been traditionally associated with companies from countries in the former Soviet
Bloc.
25. Countertrade is on the increase worldwide.
26. A typical countertrade exchange today would involve a buyer from a developed industrialized, country
and a seller from a developing country where hard currency is scarce and tightly controlled by national
institutions.
27. In many developing countries, even in countries with a greater access to hard currency (primarily due
to the export of natural reserves), governments actually mandate countertrade as a form of payment for
firms purchasing imported goods.
28. The World Trade Organization has a policy that promotes government-mandated countertrade.
29. The U.S. government supports countertrade for the sale of weapons and aircraft.
30. Ministries of Foreign Trade in many developing countries tend to favor light industry imports and to
restrict heavy industry imports.
31. Countertrade practices encourage economic inefficiency.
32. Countertrade agreements often provide a means of speeding up the negotiation process.
33. Barter is the only type of exchange that does not involve monetary exchange.
34. A clearing agreement involves buying a party’s position in a countertrade in exchange for hard
currency and selling it to another customer.
35. In a counterpurchase agreement, the seller agrees to purchase products that are usually unrelated to its
business.
36. Setting prices internationally tends to be a highly centralized decision.
37. Dynamic incremental pricing is used to avoid dumping challenges.
38. Even in unified markets such as the European Union, price differentials exist.
39. In spite of the obvious advantages of tailoring the price to the budget of the consumer, many
companies selling high-end technology products opt for using a standardized pricing strategy.
40. Companies thus use a skimming strategy price the product above that of competitors, when
competition is minimal.
MULTIPLE CHOICE
1. The location of production facilities determines
a.
The extent to which companies can control costs.
b.
The extent to which companies price their products competitively.
c.
Whether the company can benefit from advantageous exchange rates.
d.
All of the above.
2. It is often difficult for firms to keep track of product costs. This is attributed to which of the following?
a.
Products are assembled in one country and sold all over the world.
b.
Product components are manufactured in different countries.
c.
None of the above.
d.
a and b only.
3. Why should a manufacturer not use even pricing in Turkey?
a.
Even numbers are considered to be unlucky.
b.
Even pricing indicates a “cheap” product.
c.
Retailers can’t “keep the change” if the product is priced using even pricing.
d.
It is harder to adjust even pricing in inflationary markets.
4. A manufacturer may charge different prices in different markets for the same product. Which reason is
not a valid reason for differential pricing?
a.
To meet the needs of target consumers who have a limited purchasing power.
b.
To reduce the risk of gray markets.
c.
To respond to differences in wholesale prices in different markets.
d.
To react to changes in the exchange rate in countries where the products are sold.
5. A firm is vulnerable to competition from parallel imports if it
a.
Engages in differential pricing.
b.
Distributes through unauthorized channels.
c.
a and b.
d.
None of the above.
6. A manufacturer may charge different prices in different markets for the same product
a.
to meet the needs of target consumers who have a limited purchasing power
b.
to keep the product price competitive in markets that are actively targeted by competition
c.
due to the fact that it offers discounts to wholesalers buying higher quantities
d.
all of the above are reasons why a manufacturer may charge different prices
7. How do regulators decide on whether or not a company is guilty of dumping activity?
a.
The value of the product is based on production costs plus reasonable expenses.
b.
The price is checked against the price charged within the exporting country.
c.
The price is checked against similar products in a third country.
d.
Any of the above methods may be used.
8. According to the World Trade Organization, dumping should be condemned if it
a.
Threatens an established industry.
b.
Delays the establishment of a viable domestic industry.
c.
a and b.
d.
None of the above.
9. Which government branch is responsible for determining whether products are dumped on the U.S.
market?
a.
The Export-Import Bank
c.
The Ministry of Finance
b.
The U.S. Department of Commerce
d.
The U.S. Foreign Trade Office
10. According to the text, which U.S. industry has recently come under scrutiny by the Chinese
government for dumping activity?
a.
Pharmaceuticals
c.
Computers
b.
Newsprint
d.
Steel
11. What are countervailing duties?
a.
Duties imposed on parallel importers.
b.
Duties applied to countertrade transactions.
c.
Duties used to counter import quotas.
d.
Duties imposed on subsidized products imported into the country.
12. Which of the following have been at the center of anti-dumping action in the past decades for the
U.S.?
a.
Steel
c.
Textiles
b.
Electronics
d.
All of the above
13. What loophole do international firms take advantage of in circumventing anti-dumping laws?
a.
They modify their products slightly so as not to permit a direct comparison.
b.
They use a cash-based accounting method instead of an accrual-based accounting method.
c.
They set prices based on their fixed costs instead of their marginal costs.
d.
All of the above are true.
14. How can companies bypass profit repatriation restrictions?
a.
By having a minority share of the business (i.e., less than 50%).
b.
Through effective transfer pricing.
c.
By effectively using parallel markets.
d.
Through exchange rate management.
15. Why do low-income countries often criticize the use of transfer pricing?
a.
It is a way for firms to evade taxes.
b.
The transfer price is often used to dump product on the market.
c.
Transfer pricing ignores exchange rates.
d.
Transfer pricing depletes much needed soft currency reserves.
16. In cost-based transfer pricing, which cost is used to determine the price?
a.
Fixed costs
c.
Total costs
b.
Marginal costs
d.
Opportunity costs
17. Which type of currency is accepted for payment by any international seller?
a.
Hard currency
c.
Pegged currency
b.
Soft currency
d.
Swing credits
18. Which type of currency is kept at a high artificial exchange rate, is often overvalued, and is controlled
by the national government?
a.
Hard currency
c.
Pegged currency
b.
Soft currency
d.
Variable currency
19. In the late 1960’s Pepsi agreed to an exchange of Pepsi syrup and bottling equipment in return for
distributing Stolichnaya vodka. This is an example of a:
a.
countertrade agreement
c.
transfer pricing mechanism
b.
gray market
d.
product dumping loophole
20. Approximately what percentage of total world trade is financed through countertrade transactions?
a.
10%
c.
30%
b.
20%
d.
40%
21. Why do firms engage in countertrade?
a.
Firms in developing countries are unable to secure bank loans.
b.
Governments sometimes mandate countertrade as a form of payment.
c.
Firms in developing countries lack access to hard currency.
d.
All of the above are true.
22. Which statement regarding countertrade is true?
a.
The World Trade Organization supports countertrade.
b.
The U.S. condemns all forms of government-mandated countertrade.
c.
The U.S. government only interferes in countertrade agreements that involve firms that
use U.S. government financing.