Limit pricing

Updated: Aug 20, 2021

A policy an incumbent firm can use to discourage entry by a new firm into its market. Limit pricing involves charging a low enough price — the limit price — for entry to appear unprofitable to other firms. Limit pricing is not a credible threat: charging the limit price is not the optimal strategy after entry has occurred, and it is always best for the incumbent firm to accommodate the entrant.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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James Knight
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