pricing method

limit pricing aim

Incumbent firm set price just above AC knowing that incumbent firms already achieved high internal economies of scale, rivals haven’t achieved the same level of internal economies of scale, they have higher cost.

Price set above potential entrants AC, deter new entrants into the market due to low potential profitability

Predatory pricing aim

Shutdown of rivals. Get rid of businesses already in the industry by setting price below their AVC

Start at sales max, move to predatory price, up to profit max

In oligopoly, why don’t take part in price competition

-bc their goods are homogeneous and have high XED, interdependent, they’ll lose out in price competition

Oligopoly why use non price competition

Want to move away from rigid price to sticky price by differentiating their product,

Differentiation, change consumer preference, build brand loyalty, increase revenue, more price setting ability eventually love to profit max objective

Why not take part in non price comp

Advertising high sunk cost. Bc of interdependence, one firm advertising result in others following suit to prevent loss in revenue, profit,market share, attempts of differentiation often fail bc they get copied, no incentive