ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In a predatory pricing scheme, prices are set unrealistically low in order to eliminate competitors and create a monopoly. Consumers benefit from lower prices in the short term but suffer in the long term as the successful predator has eliminated choice and is free to raise prices.

Detailed explanation-2: -Setting prices too low can convey the message to consumers that your product isn’t as good as other similar products on the market. While low prices may not earn you greater profits, the more of a product you sell the more profit you make.

Detailed explanation-3: -What Is Penetration Pricing? Penetration pricing is a marketing strategy used by businesses to attract customers to a new product or service by offering a lower price during its initial offering. The lower price helps a new product or service penetrate the market and attract customers away from competitors.

Detailed explanation-4: -Risk of losing profit: Although the strategy generates additional traffic and sales for the store, it is important to introduce other items at the store to generate additional sales. A store runs the risk of losing money if consumers only go purchase the discounted item.

Detailed explanation-5: -Penetration pricing: price is set artificially low to gain market share quickly. This is done when a new product is being launched. It is understood that prices will be raised once the promotion period is over and market share objectives are achieved.