Selling a product below cost to gain a foothold in the market in order to eliminate the inefficiencies introduced by lock-in is known as:
A) predatory pricing.
B) limit pricing.
C) penetration pricing.
D) the price-cost squeeze.

Question

Quizplus · Accepted Answer

Penetration pricing is a pricing strategy in which a product is sold below its cost to gain a foothold in the market. The aim is to attract customers and gain market share, after which the company can gradually increase the price. This approach helps to eliminate inefficiencies introduced by lock-in, which is a phenomenon where customers stick with a particular product or service due to the high cost of switching to another option. Predatory pricing refers to the practice of selling goods below cost to drive competitors out of business, while limit pricing and price-cost squeeze are strategies used by dominant firms to discourage entry or competition.

Selling a Product Below Cost to Gain a Foothold in the Market