Economics Oligopoly Questions
Price skimming theory in oligopoly refers to a pricing strategy where a firm sets a high initial price for its product or service in order to maximize profits in the short term. This strategy is typically employed by dominant firms in an oligopolistic market structure, where there are only a few large competitors. The firm aims to capture the maximum possible revenue from the market by targeting early adopters or customers who are willing to pay a premium price for the product. Over time, as competition intensifies and more firms enter the market, the firm gradually lowers the price to attract a broader customer base. This strategy allows the firm to capitalize on its market power and gain a competitive advantage in the early stages of product introduction.