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
2
Q
The greater the barriers to entry…
A
the higher the limit price.
3
Q
What area is limit pricing mainly used in?
A
contestable markets
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
