A company tends to use penetration pricing when it:
A) perceives the demand for a new product to be price inelastic.
B) wants to charge a relatively high price on a new product.
C) expects competition to move in rapidly.
D) has a temporary monopoly in the market.

Question

Quizplus · Accepted Answer

Penetration pricing is a pricing strategy used when a company launches a new product and wants to quickly capture a larger market share. The company sets a relatively low price for its new product to attract customers and gain market share quickly. This strategy is useful when the company expects competition to move in rapidly and wants to establish a customer base before competitors enter the market. Therefore, option C is the correct answer. Option A is incorrect because when the demand is price inelastic, a company can charge a higher price without losing many customers. Option B is incorrect because the company wants to charge a relatively low price in penetration pricing. Option D is incorrect because if a company has a temporary monopoly in the market, it can set a high price without much competition.

A Company Tends to Use Penetration Pricing When It