Question

Which of the following is correct regarding penetration pricing? There is more than one answer to this question. You must mark all of the answers to receive full credit for this question. It is a temporary pricing strategy intended to quickly attract consumers to a firm. It is a strategy that is commonly found among perfectly competitive firms. It is used by firms to overcome network effects of well- established firms. It is used by firms with a long history in an industry that try to capture sales from new firms that are entering the industry. It is a strategy that is defined by a firm charging a price that is below that firm's own marginal cost. Onestien 15

Answer 1

Answer:

(i) It is a temporary pricing strategy intended to quickly attract consumers to a firm.

(ii) It is used by firms to overcome network effects of well-established firms.

reason: Penetration pricing is a pricing strategy used by firms entering a market in which there are well established firms in business, in order to capture a markst share and get a footing in that market. Normally, penetration price is slightly higher than or equal to  their marginal cost. So, it is much below the market price.Sometimes, it may even be below the maginal cost, but this is very rare. Penetration pricing cannot take place in a competitive market becuse sellers in a competitive market are price takers. On the other hand, well established firms adopt predatory pricing strategy to intimidate new entrants.