Economics Oligopoly Questions
The price skimming model in oligopoly refers to a pricing strategy where a firm sets a high initial price for a new product or service in the market. This strategy is typically employed by dominant firms in an oligopolistic market structure to maximize their profits. The high initial price allows the firm to capture the maximum revenue from customers who are willing to pay a premium for the new product or service. However, over time, as competition increases and more firms enter the market, the firm gradually lowers the price to attract a larger customer base. This strategy aims to exploit the willingness of early adopters to pay higher prices while also gaining market share as the price decreases.