Limit Pricing

Limit Pricing is a monopolistic pricing strategy in which the competitor sets the price of the product so low and at such a level that deter the other potential entrants from entering the market and competing with the competitor. It may not be necessary that the competitor is earning profit from the limit price strategy but keeps away the other companies and potential sellers from entering in the market. However sometimes even the limit price strategy cannot stop the competitors from entering the market that means if they can bear the loss of low pricing they can enter the market to give a tough competition to the competitor.

A company that is involved in implementing the limit pricing strategy may result in enhancing the production capacity of the products as this extra and additional capacity can be used by the company to slow down the prices of their products if in any case the competitors decides to enter the market.

There are several advantages and disadvantages of the limit pricing strategy as for the advantage this pricing strategy limits or reduces the competition among the competitors of the same business. On the other hand as for disadvantage it is sometimes consider to be illegal to implement this pricing strategy as it can trigger a lawsuit from the competitors of the company. Another disadvantage of implementing this strategy is that it may result in complacency of the company as company may not able to earn the profit after implementing this pricing strategy.

Other Related Accounting Articles:

• Pricing Strategies: Dynamic Pricing
• Full Cost plus Pricing