Answer to Question #158502 in Microeconomics for Zehra Malik

Question

Identify at which point is penetration pricing and

at which point is skimming. Which is the best

point for a newly launched everyday use product

in competitive environment and why?

Answer 1

Penetration pricing relies on a low upfront price to attract customers, while skimming is the use of high upfront prices to maximize short-term profits from the most eager and interested customers.

Types of products for which price skimming would be appropriate: When the product is in the initial stages of its life cycle, price skimming is most appropriate. The example considered is iPhone, when the product was introduced in the market in 2007, the original iPhone was sold at $599 for an 8GB and $499 for a 4GB.