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Limit pricing

Limit pricing is a pricing strategy used by firms to deter entry into a market by potential competitors. The idea is that the incumbent firm sets its prices at a level that is low enough to discourage new firms from entering the market, but high enough to still be profitable for the incumbent firm. This strategy can be effective if the incumbent firm has a significant cost advantage over potential competitors, or if the market is not very price sensitive.

There are a few reasons why a business might use limit pricing as a strategic tool. One reason is to protect market share and maintain a dominant position in the industry. Another reason is to deter potential competitors from entering the market, which can help to reduce competition and increase profits. A third reason is to create a barrier to entry for new firms, which can help to preserve the incumbent firm's competitive advantage.

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