Question

2. What is limit pricing? How can limit pricing be used by a dominant firm to maintain its position in a market with respect to a competitive fringe? What is myopic pricing? Describe the tradeoffs faced by a dominant firm in pricing myopically versus using limit pricing.

Answer 1

A limit pricing is a technique used by some major producers, in which they sell their goods or services at such low prices that and makes it difficult for any other firm to enter his market as it makes their entry extremely unprofitable. A dominant may offer his products at very low prices and may discourage the buyer to purchase the goods of other small producers.

Myopic pricing is that pricing in which producer set his prices at such costs which leads to early season's purchase but also has a risk of late season losses.

A myopic pricing in keeping price low for a certain amount of time of a season but limit pricing is keeping it low all the time. The Tradeoff of using limit pricing is loss of excitement in customers for new offers and overall less revenue.