CPP Legal and Ethical Constraints 2 — Questions and Answers
Question 1: Under the Robinson-Patman Act, a supplier charges different prices to two competing retailers for the same product. Which defense would most likely justify this price difference?
- The supplier prefers one retailer over the other
- The cost difference is justified by different order volumes reducing shipping costs (Correct answer)
- One retailer is located in a different state
- The supplier wants to grow market share with the lower-priced retailer
Correct answer: The cost difference is justified by different order volumes reducing shipping costs
The Robinson-Patman Act allows price differences that can be justified by actual cost differences, such as lower per-unit shipping costs for larger orders.
Question 2: Which of the following best describes 'resale price maintenance' (RPM) under current U.S. antitrust law?
- Always per se illegal under the Sherman Act
- Always legal as a normal business practice
- Evaluated under the rule of reason to determine net competitive effects (Correct answer)
- Legal only when the manufacturer holds less than 30% market share
Correct answer: Evaluated under the rule of reason to determine net competitive effects
After Leegin Creative Leather Products v. PSKS (2007), vertical RPM agreements are evaluated under the rule of reason rather than treated as per se illegal.
Question 3: A pricing manager discovers a competitor's confidential price list was accidentally emailed to her company. What is the most ethically appropriate action?
- Use the information to undercut competitors before they notice
- Share it internally but do not use it for pricing decisions
- Notify the competitor, delete the information, and avoid using it (Correct answer)
- Submit it to legal for competitive intelligence archiving
Correct answer: Notify the competitor, delete the information, and avoid using it
Ethical standards and misappropriation laws require returning or destroying inadvertently received confidential competitive information without using it.
Question 4: Which antitrust concept describes an agreement among competitors to divide customers, territories, or markets among themselves?
- Predatory pricing
- Market allocation (Correct answer)
- Price leadership
- Tying arrangement
Correct answer: Market allocation
Market allocation agreements, where competitors divide markets, customers, or territories, are treated as per se illegal horizontal restraints of trade under the Sherman Act.
Question 5: A company prices a product below average variable cost in a market it dominates. The intent is to eliminate a smaller rival. This practice is best classified as:
- Penetration pricing
- Predatory pricing (Correct answer)
- Skimming pricing
- Loss-leader pricing
Correct answer: Predatory pricing
Predatory pricing involves pricing below cost with the intent to eliminate competition, which may violate Section 2 of the Sherman Act.
Question 6: Under the Federal Trade Commission Act, which of the following pricing practices most clearly constitutes an 'unfair or deceptive act'?
- Charging a premium price for a luxury brand
- Advertising a 'sale' price on an item never previously sold at the reference price (Correct answer)
- Offering volume discounts to large buyers
- Raising prices during periods of high demand
Correct answer: Advertising a 'sale' price on an item never previously sold at the reference price
Fictitious reference pricing—advertising a 'sale' against a price that was never actually charged—is a deceptive practice prohibited by the FTC Act.
Question 7: A U.S. company bribes a foreign government official to secure a favorable pricing contract. Which law is most directly violated?
- Sherman Antitrust Act
- Robinson-Patman Act
- Foreign Corrupt Practices Act (FCPA) (Correct answer)
- Clayton Act
Correct answer: Foreign Corrupt Practices Act (FCPA)
The FCPA prohibits U.S. companies and individuals from bribing foreign government officials to obtain or retain business.
CPP Legal and Ethical Constraints 2
Under the Robinson-Patman Act, a supplier charges different prices to two competing retailers for the same product.
Which defense would most likely justify this price difference?