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Barriers to Entry and Limit Pricing

Suppose that, prior to other firms entering the market, the maker of a new smartphone (Way Cool, Inc.) earns $100 million per year. By reducing its price by 50 percent, Way Cool could discourage entry into â??itsâ? market, but doing so would cause its profits to sink to -$5 million. By pricing such that other firms would be able to enter the market, Way Coolâ??s profits would drop to $75 million for the indefinite future. In light of these estimates, do you think it is profitable for Way Cool to engage in limit pricing? Is any additional information needed to formulate an answer to this question? Explain

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Suppose that, prior to other firms entering the market, the maker of a new smartphone (Way Cool, Inc.) earns $100 million per year. By reducing its price by 50 percent, Way Cool could discourage entry into â??itsâ? market, but doing so would cause its profits to sink to -$5 million. By pricing such that other firms would be able to enter the market, Way Coolâ??s profits would drop to $75 million for the indefinite future. In light of these estimates, do you think it is profitable for Way Cool to engage in limit pricing? Is any additional information needed to formulate an answer to ...

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