Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 20

Which of the following statements pertaining to a market skimming pricing strategy is not true?

Answer options

• A. The strategy is favored when unit costs fall with the increase in units produced.
• B. The strategy is favored when buyers are relatively insensitive to price increases.
• C. The strategy is favored when there is insufficient market capacity and competitors cannot increase market capacity.
• D. The strategy is favored when high price is perceived as high quality.

Correct answer: A

Explanation

The correct answer is A because market skimming typically occurs when unit costs do not necessarily fall with increased production; instead, it focuses on maximizing profits from early adopters. The other options correctly describe conditions that favor a skimming strategy, such as price insensitivity (B), limited market capacity (C), and the perception of high quality linked to high prices (D).