Limit Pricing

Question 1

Limit pricing

Answer 1

Setting prices low enough that they would make it unprofitable for new firms to enter the market. Deterring hit and run competition.

Question 2

Firm might use limit pricing and remain profitable

Answer 2

If the incumbent firms in the industry enjoy significant economies of scale.

Question 3

Predatory pricing

Answer 3

Prices are set so low that other firms already in the market are forced out of business by making a loss as they seek to complete.

Question 4

Predatory pricing in the long run

Answer 4

The reduced competition will make it possible for the firm to increase its prices especially when other barriers to entry are high.