ExpertEasy2 marksMultiple Choice
ACCA · Question 8 · Pricing Decisions
Section A
PharmaLife has developed a revolutionary new drug that cures a rare disease. The drug is protected by a strict patent, and there are no competitors in the market. The company wishes to maximize its short-term profits to recover its massive R&D costs before the patent expires.
Which pricing strategy is most appropriate for PharmaLife?
Section A
PharmaLife has developed a revolutionary new drug that cures a rare disease. The drug is protected by a strict patent, and there are no competitors in the market. The company wishes to maximize its short-term profits to recover its massive R&D costs before the patent expires.
Which pricing strategy is most appropriate for PharmaLife?
Answer options:
A.
Penetration pricing
B.
Market skimming
C.
Loss leader pricing
D.
Marginal cost pricing
How to approach this question
Identify the market conditions: unique product, patent protection, high R&D, no competition. These are the textbook conditions for a skimming strategy.
Full Answer
B.Market skimming✓ Correct
Market skimming involves setting a high initial price for a new product. It is highly suitable for products that are innovative, have high development costs, and are protected by barriers to entry (like patents), as it allows the company to maximize short-term profits from customers willing to pay a premium.
Common mistakes
Confusing skimming with penetration pricing. Penetration is used to enter a highly competitive market.
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