38. Two brokers from different companies meet for lunch to discuss what commission rate should be charged in their area. They decide on an amount and agree to charge this rate to clients. Which term describes the activity they are practicing?
Answer: A
Price fixing describes the activity they are practicing.
The brokers are engaging in price fixing by agreeing on a specific commission rate to charge clients. This collusion to set prices undermines fair competition in the market.
A) price fixing
This option is correct because price fixing occurs when competitors agree to set prices at a certain level, rather than allowing competition to determine pricing. By deciding on a commission rate together, the brokers are coordinating their pricing strategies, which is a clear example of price fixing.
B) steering
Steering refers to the practice of directing clients towards specific products or services for the benefit of the broker, often at the expense of the client's best interest. This option is incorrect as it does not pertain to the agreement on commission rates between the brokers.
C) puffing
Puffing involves making exaggerated claims about a product or service to entice buyers, which is a form of salesmanship rather than an agreement on pricing. Therefore, this option is incorrect as it does not relate to the brokers’ collusion on commission rates.
D) fraud
Fraud involves deceitful practices aimed at securing unfair or unlawful gain. While price fixing can be considered unethical and may lead to legal consequences, it is not classified as fraud in this context. Thus, this option does not accurately describe the brokers' actions.
Conclusion
The activity of the brokers is definitively identified as price fixing, as they have colluded to set a specific commission rate. Options B, C, and D do not accurately reflect the nature of their agreement, as they pertain to different unethical practices that do not involve the coordination of pricing strategies.