Limit pricing will effectively deter entry when: A. the incumbent links the pre-

Question

Limit pricing will effectively deter entry when:

A.

the incumbent links the pre-entry price to post-entry profits.

B.

the incumbent has incomplete information.

C.

the entrant must commit to enter the market.

D.

All of the statements associated with this question are correct.

Limit pricing will effectively deter entry when:

A.

the incumbent links the pre-entry price to post-entry profits.

B.

the incumbent has incomplete information.

C.

the entrant must commit to enter the market.

D.

All of the statements associated with this question are correct.

Explanation / Answer

Correct option: (a) the incumbent links the pre-entry price to post-entry profits

Reason: Only when the pre-entry price (which is a threat for the entrant) is low enough and at the same time can give post entry profits, will the incumbent’s plan be successful and would deter entry.

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