PrepTest 140, Section 1, Question 22
From time to time there is a public(54 more words not shown)
Which one of the following(8 more words not shown)
- AAny company that(10 more words not shown)
- BIt is unlikely(10 more words not shown)
- COnly the largest(14 more words not shown)
- DIt is only(12 more words not shown)
- EAny pricing practice(10 more words not shown)
Reading the argument
“Predatory” sounds like charging too much, but the passage means charging very little: low enough to drive competitors out of business.
Imagine a product costs $5 to make. A company sells it for $1, taking a loss while competitors struggle to survive. Once those competitors disappear, could the company raise the price to $100? The author says the threat of new competition prevents that. A new business could offer the product for $50 and still earn $45 over the production cost. The established company doesn't need an actual competitor today to worry about one arriving tomorrow.
That account makes me ask how hard it is to enter the market. Starting an airline might require much more than starting a personal training business. If getting a new business running is difficult, perhaps a lone seller wouldn't face much of a threat. So my first concern is whether the proposed restraint on prices really works.
What we’re looking for
The question asks for an assumption the argument depends on. Let's keep that concern in mind, but also follow the conclusion carefully: the author wants us to accept the pricing practice. We should test the choices against the reasoning offered for that judgment, rather than demand an answer about the first concern that occurred to us.
Working the answers
- A
The threat of entry can influence prices without a competitor actually entering. In fact, keeping prices low might keep potential competitors away. The argument doesn't require every successful business inevitably to attract actual entrants; that goes beyond the threat the author relies on.
- B
Several companies could try the strategy at once without settling whether the practice should be acceptable. The author doesn't base acceptability on how rarely businesses use it simultaneously. This isn't an assumption needed for the stated reason.
- C
The argument doesn't depend on limiting the strategy to the biggest or wealthiest companies. Whether a smaller company could sustain it is different from whether the threat of renewed competition prevents unreasonable prices.
- D
Competition needn't be the only restraint on prices. A company could also worry about public criticism or reputational damage. Those additional restraints wouldn't defeat the claim that the threat of competition prevents unreasonable increases. “Only” adds an exclusivity the author doesn't need.
- ECorrect
This addresses a different gap from my initial concern about starting businesses. The author treats keeping prices reasonable as enough to make the practice acceptable. But a prediction about prices doesn't automatically establish what should be allowed; we need that connection.
E states the principle the author relies on: a pricing practice that doesn't result in unreasonable prices should be acceptable. Applied here, it carries us from the claimed restraint on future prices to the judgment about predatory pricing. Without treating that outcome as sufficient for acceptability, the author hasn't answered possible objections to the practice merely by explaining why prices would stay reasonable.
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