ACCA Applied Skills · Performance Management · Pricing decisions
Which statement about market skimming is correct?
Market skimming can attract competitors because the high prices and margins earned in the early stage show the market is profitable. The other statements describe penetration pricing, which seeks share and deters entrants with low prices.
- AIt can attract competitors into the market because of the high profit margins earnedCorrect
- BIt is designed to deter competitors by giving low margins
- CIt is most suitable where demand is highly price elastic
- DIt aims to maximise market share in the early stage of the product life cycle
Explanation
Skimming earns high margins on low volume, which signals attractiveness and may encourage new entrants. Deterring competitors and maximising share are features of penetration pricing, which suits elastic demand.
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