question archive The practice of the only seller in a market charging a price less than the monopoly price in order to scare away potential entrants is called A

The practice of the only seller in a market charging a price less than the monopoly price in order to scare away potential entrants is called A

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The practice of the only seller in a market charging a price less than the monopoly price in order to scare away potential entrants is called

A. trigger pricing.

B. agile pricing.

C. limit pricing.

D. collusive pricing.

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The correct option is C) Limit Pricing

The monopolist uses limit pricing to discourage the entry of other firms. If the monopolist sets a maximum price for the product then this will attract new players toward the market as the profit will be very high. Through the limit pricing, the monopolist reduces the chances of entering the market for the new players. The monopolist gets little profit in the short run but it enables the firm to be a monopolist in the long run. Competing with the monopolist is a very difficult task for any new player because the monopolist has control over resources and other factors of production and a new entrant will not take the risk if the profit is not high.

Reasons for the incorrect options

  • Trigger price is not a correct option because it is used in the stock market.
  • Agile pricing is the pricing of the product or service which adopts the market changes automatically.
  • Collusive pricing is the pricing strategy when various companies mutually agree to set the price of the product or service.