Penetration pricing is:
A) a way to raise a rival's marginal cost.
B) a way to raise a rival's fixed cost.
C) a way to overcome an incumbent's first-mover advantage.
D) ineffective in markets with strong networks.

Question

Quizplus · Accepted Answer

Penetration pricing is a pricing strategy in which a company sets a low price for its products or services initially to gain market share and overcome an incumbent's first-mover advantage. It aims to attract customers away from competitors and encourage them to switch to the new product. Therefore, option C is the best choice. Option A and B are incorrect as penetration pricing does not aim to raise a rival's marginal or fixed cost, respectively. Option D is partially correct, as penetration pricing may not be effective in markets with strong network effects, but it is not an absolute rule.

Penetration Pricing Is