Question

Limit pricing will effectively deter entry when:________.

A. the incumbent links the pre-entry price to post-entry profits.
B. the incumbent has incomplete information.
C. the entrant must commit to enter the market.
D. All of the statements associated with this question are correct.

Answer 1

A. the incumbent links the pre-entry price to post-entry profits.

Step-by-step explanation:

Only when the pre-entry price (which is a threat for the entrant) is low enough and at the same time can give post entry profits, will the incumbent’s plan be successful and would deter entry. However, 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.