3. Assume two firms are currently competing in a market. If one of the two firms...

3. Assume two firms are currently competing in a market. If one of the two firms wants to try to eliminate the other firm as a competitor, should it undertake a strategy of limit pricing or predatory pricing? Why? In addition, describe the conditions under which the strategy you have selected will be most successful.

Expert Solution

Strategy of predatory pricing will be the most suitable for driving out competitors.

Predatory pricing is the best preferred when the motto is to completely drive the completion to the ground.Limit pricing is most suitable for limiting competition entry into the market.It does little to eliminate an already strong competition.

Predatory pricing can eliminate multiple completions at the same time.

It serves the dual purpose of limiting others entry to the market and levelling the threats.

Though the company may incur short term losses,it can permanently disrupt the market to give it a monopoly where it decideds the market path in the future.

Predatory pricing will be most successful under following cases:

1.When the competition is in already financial stress

2.When most of the competition includes start ups.Predatory pricing can drive the prices so low that keeping the startups away from bankruptcy can be an impossible job.

3.When the company moving forward with predatory pricing holds something like monopoly over the market,P.P can be the most viable option

Rahul Sunny answered 6 months ago

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