Price Competition

Question 1

Special Offer Pricing

Answer 1

• Firms introduce temporary prices on some goods they are selling.

Question 2

Limit Pricing

Answer 2

• Firms sacrifice short-run profit maximisation in order to maximise long-run profits,achieved through deterring entry of new firms.
• This is done due to fear of increased competition and decreased market power.

Question 3

Predatory Pricing

Answer 3

• Instead of deterring market entry (limit pricing), PP removes recent entrants to the market.
• Sets prices below costs to force new market entrants out of business.
• Once new firms has left, established firm may decide to restore prices to previous levels.