Question

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16) Skimming Pricing is used when ? [Pick one from below]
a)Price Insensitive
b) Elastic of demand

Answer 1

Correct option is a) price insensitive

Reason:

Price skimming is a pricing strategy in which a sellers fix a relatively high initial price for a product or service at first, then lowers the price over a period of time. It is a temporaryl version of price discrimination. It allows the firm to recover its sunk costs quickly before competition enters in the market and lowers the market price.

Price skimming is also referred to as riding down the demand curve. The objective of a price skimming strategy is to capture the consumer surplus early in the product life cycle in order to achieve a monopolistic position or the low price sensitivity of customers.

• Example: Call rates of mobiles were set very high in initial stage. Since price is high at initial stage, only few buyers who can afford it can purchase it.