➡️ Price Skimming: This pricing policy involves setting a high initial price for a product or service, which is then gradually lowered over time. This strategy is often used to maximize profits from early adopters of a product or service, while also allowing the company to reach a wider market as the price decreases.
➡️ Penetration Pricing: This pricing policy involves setting a low initial price for a product or service in order to quickly gain market share. This strategy is often used to quickly gain a foothold in a market, while also allowing the company to increase prices over time as demand increases.
➡️ Price Discrimination: This pricing policy involves charging different prices for the same product or service based on the customer's ability to pay. This strategy is often used to maximize profits by charging higher prices to those who are willing and able to pay more, while also allowing the company to offer lower prices to those who are less able to pay.
What is limit pricing and how does it affect market competition?
Limit pricing is a strategy used by dominant firms to deter entry of potential competitors by setting prices low enough to make it unprofitable for new entrants to enter the market. This strategy can reduce competition and allow the dominant firm to maintain its market power.
What are the advantages and disadvantages of limit pricing?
The advantage of limit pricing is that it can deter entry of potential competitors, which can help the dominant firm maintain its market power and profitability. However, the disadvantage is that it can reduce competition and lead to higher prices for consumers. Additionally, limit pricing may not be effective in deterring entry if the potential entrant has a lower cost structure or is able to differentiate its product.
How can governments regulate limit pricing to promote competition?
Governments can regulate limit pricing by enforcing antitrust laws and promoting competition in the market. This can be done by breaking up monopolies, preventing mergers that would reduce competition, and promoting entry of new firms through policies such as subsidies or tax incentives. Additionally, governments can regulate prices directly through price controls or by setting price ceilings to prevent dominant firms from engaging in limit pricing.