![]() And they might have sent the signal, that first of all, you know, this market is not very profitable. Now, as these rumors became more viable, as it became more and more likely that a tunnel was actually going to be built both P&O and Stena lowered prices by about 50%. Okay, so very clear, very close substitute to ferries between Calais and Dover, was a tunnel that would just as well take cars from France to the UK or from the UK to France. And these rumors actually persisted for a long time, that a tunnel would be built between a place close to Calais and Folkestone. They were producing, or they were offering identical services. It was dominated by P&O Ferries, and Stena Lines. And this market was traditionally dominated by two players. And so these ferries were going back and forth. So as you may know there was for a long time, there were ferries going between UK and France, and the starting point was Calais, the end point was Dover. Now, one example that I think works fairly well is the example of the Ferries and the Eurotunnel. Because if limit pricing is successful, you're then not going to see entry, and then it's difficult to see if this was limit pricing, or if it was one of these two justifications. So it's actually difficult to think of examples for limit pricing. In that case, this can work, limit pricing can work. Now, this only works if we have incomplete information, so there must be some uncertainly about either low demand, or the shape of the demand curve, the nature of demand, or there must be uncertainty about the cost structure of me as an incumbent. Again, this would be a signal that makes it less attractive for an entrant to jump into the market and try and take market share off you. Another signal that you might send is that you are a low-cost incumbent, so, dear entrant, if you come in, you would face a very dangerous and very aggressive competitor. You're signalling to the potential entrant that either there's low demand, and the market that, you, dear entrant, are trying to enter is not an attractive one. Why not make the profits that you can if you are a monopolist? Well, if there is a potential for someone to come in and take market share off you then keeping prices low may send one of two signals or both types of signals actually. The intuition is that you're keeping prices low despite the fact that you have a monopoly position, which may seem strange because why throw away money. Whereas predatory pricing is after entry has happened to try and drive existing competitors out of the market, but let's first focus on limit pricing. Both refer to aggressive pricing at some point, however limit pricing is about before entry happens i.e. ![]() So let's now move on and look at two more strategies of entry deterrence, limit pricing and predatory pricing. ![]()
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