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Profitable for way cool to engage in limit pricing

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Reference no: EM131100012

Suppose that, prior to other firms entering the market, the maker of a new smartphone (Way Cool, Inc.) earns $85 million per year. By reducing its price by 50 percent, Way Cool could discourage entry into "its" market, but doing so would cause its profits to sink to -$6 million. By pricing such that other firms would be able to enter the market, Way Cool's profits would drop to $35 million for the indefinite future.

In light of these estimates, do you think it is profitable for Way Cool to engage in limit pricing?

  • More information is needed to answer this question.
  • Yes - limit pricing is profitable.
  • No - limit pricing is not profitable.

Reference no: EM131100012

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