Th3.4: Limit Pricing Flashcards

1
Q

What will firms do in order to prevent new entrants?

A

set prices low (the limit price) - the price needs to be high enough for them to make at least normal profit but low enough to discourage other firms from entering the market

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2
Q

The greater the barriers to entry…

A

the higher the limit price.

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3
Q

What area is limit pricing mainly used in?

A

contestable markets

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4
Q

What is the drawback of limit pricing?

A

it means firms cannot make profits as high as they would otherwise be able to

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