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Hi John,
One of the MCQs on your revision mock asks about suitable conditions for price skimming. The answer included ‘where there are significant economies of scale’ which has confused me.
I thought that was one of the conditions for penetration pricing as the low price would lead to high volume to take advantage. How does it apply to price skimming?
Thanks,
Jenny
Price skimming is charging a high price initially and then reducing it over time.
Although economies of scale are not always the reason for doing it, it is a fact that if there are economies of scale then as you reduce the price and sell more, then the cost per unit will fall which means you can afford to drop the price more 🙂Ah, I get it. So, it’s looking forward to the point after the initial period. Wouldn’t have considered that!
Thanks John!
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