Asked by Jordan Edmundson on Jun 01, 2024
Verified
The strategy of establishing a price that prevents the entry of new firms is called
A) cartel pricing.
B) limit pricing.
C) price leadership.
D) profit maximizing price.
Limit Pricing
Limit pricing is a strategy where prices are set lower than the short-term market equilibrium by a dominant player to deter new entrants into the market.
Price Leader
A company that has the dominant influence in setting the price levels for goods or services in a particular market, often because of its significant share of the market.
Entry of Firms
This term refers to the process by which new businesses enter into an industry, contributing to competition and potentially influencing market dynamics.
- Acquire familiarity with the pivotal function of price formulation in oligopolies, which includes strategies like limit pricing and engaging in price wars.
Verified Answer
YM
Yasmena MawledJun 02, 2024
Final Answer :
B
Explanation :
Limit pricing is a strategy where an incumbent firm sets a low price, and possibly increases output, to deter entry by new competitors. This makes it unprofitable for potential entrants to enter the market, as the incumbent firm's low prices do not allow new firms to cover their initial costs and earn a sustainable profit.
Learning Objectives
- Acquire familiarity with the pivotal function of price formulation in oligopolies, which includes strategies like limit pricing and engaging in price wars.