Limit pricing is:
A) a strategy whereby a firm temporarily prices below its marginal costs to drive competitors out of the market.
B) a strategy used by a vertically integrated firm to raise rivals' costs of inputs, while holding constant final product prices.
C) a strategy whereby an incumbent maintains a price below the monopoly price in order to prevent entry.
D) the act of charging a low price initially upon entering a market to gain market share.

Question

Quizplus · Accepted Answer

Limit pricing is a pricing strategy in which an incumbent firm maintains a price below the monopoly price in order to prevent entry. By keeping the price low, the incumbent firm makes it unprofitable for potential new entrants to enter the market. This strategy allows the incumbent firm to maintain its market power and enjoy monopoly profits in the long run.

Limit Pricing Is