TDL
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Limit Pricing

When a firm has lower average costs then the potential firm entering the market. They set the price below the potential firms average cost, but above their own in order to prevent the firm from coming into the market. After which, they will raise prices again without the fear of another firm coming into the market, and hence creating barriers to entry. They do not make a loss in the short term (unlike predatory).

^ Is the above correct, is there anything I should add?

Predatory pricing

This is when a firm sets the price below their own average costs in order to drive out competitors in the market. After the competitors have left, they will raise prices again and thus earn more profit/revenue as there is less competition. They make 100% Loss in the short term.


^ Is the above correct, is there anything I should add?
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Iceyy
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(Original post by TDL)
Limit Pricing

When a firm has lower average costs then the potential firm entering the market. They set the price below the potential firms average cost, but above their own in order to prevent the firm from coming into the market. After which, they will raise prices again without the fear of another firm coming into the market, and hence creating barriers to entry. They do not make a loss in the short term (unlike predatory).

In addition to this, it is the highest price that an incumbent (existing) firm in a market can set without enabling firms to enter the market and take away some of the supernormal profits.^ Is the above correct, is there anything I should add?

Predatory pricing

This is when a firm sets the price below their own average variable costs in order to drive out competitors in the market. After the competitors have left, they will raise prices again and thus earn more profit/revenue as there is less competition. They make 100% Loss in the short term. This is an illegal, uncompetitive practice and if found out by the Competition Comission, they will fine the firm a crippling amount of money.
^ Is the above correct, is there anything I should add?
Really good, but thought i'd just add a little more to it to give it a more evaluative feel. :P
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TDL
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Report Thread starter 6 years ago
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(Original post by Iceyy)
Really good, but thought i'd just add a little more to it to give it a more evaluative feel. :P
Great, thanks.
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Flinders87
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Predatory pricing is actually a method used to bankrupt the opposing firm, in the aim that the firm using the predatory pricing method can attempt to buy out the bankrupt firm. Hence the 'predatory' name.
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