Chap014Questions - Chapter 14 Pricing for International...

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Chapter 14 – Pricing for International Markets Discussion Questions 1. Define: Dumping Skimming Compensation deal Countertrade Parallel imports Variable-cost pricing Price Escalation Full-cost pricing Exclusive distribution Barter Product buy-back Counterpurchase Administered pricing Transfer pricing Countervailing duty Advanced Pricing Agreement (APA) Cartel 2. Discuss the causes and solutions of parallel imports and their effect on price. Parallel imports develop when importers buy products from distributors in one country and sell them in another to distributors who are not part of the manufacturer’s regular distribution system. This practice is lucrative when wide margins exist between prices for the same products in different countries. There are a variety of conditions that can create the profitable opportunity for a parallel market. Variations in the value of currencies between countries frequently lead to conditions that make parallel imports profitable. When the dollar was high relative to the West German mark, Cabbage Patch dolls were purchased from German distributors at what amounted to a discount and resold in the United States. Purposefully restricting the supply of a product in a market is another practice that can cause abnormally high prices and thus make a parallel market lucrative. Such was the case with the Mercedes-Benz automobile whose supply was limited in the U.S. Americans could buy a Mercedes- Benz automobile which was partially supplied by Americans returning to the United States with cars they could sell for double the price they paid in Germany. This situation persisted until the relative value of the dollar to the mark weakened and the price differential created by limited distribution evaporated. Pricing policies that permit large price differentials between country markets is another condition conducive to the creation of parallel markets. Japanese merchants have long maintained very high prices for consumer products sold within the Japanese market. As a result, prices for Japanese products sold in other countries are often lower than they are in Japan. For example, Japanese can buy Cannon Cameras from New York catalogue retailers and have them shipped to Japan for a price below that of the camera purchased in Japan. In addition to the higher prices for products at home, the rising value of the yen makes these price differentials even wider. For example, the New York price for Panasonic cordless telephones is $59.95 versus $152 in Tokyo and the Sony Walkman is $89.00 versus $165.23. Foreign companies doing business in Japan generally follow the same pattern of high prices for the products they sell in Japan, thus creating an opportunity for parallel markets in their products also.
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