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Unit-17: Bain’s Limit Pricing Theory

q g
Notes
Fig. 17.5

D
P High barrier
H
Price and Cost P P M L Medium barrier

Low barrier
LAC
P
C
D

O
Q Q Q
H M L
Output
• On the other hand, a big possible entrant firm which has more economies of scale and more
quantity of money is available and other cost benefits can soon entry compelled to put low barrier
of established firm by the fear of soon entry. In this way, this firm can compelled to fix close limit
price of established firm. This is shown in Fig. 17.5 and as a result entry gap P – P is very less limit
L
C
production, Q is more.
L
17.4 Keywords

• Barrier: Fence, Difficulty
• Entrant: One who enters
• Absolute Cost: Complete cost
• Rate of Entry: Entry limit price

17.5 Review Questions

1. What is the Bain’s Limit Price Theory? Explain.
2. Describe the Bain Model.
3. What do you mean by Product Differentiation?
4. Briefly explain ‘Absolute Cost Advantage’.

Answers: Self Assessment

1. Accommodation 2. Firms 3. Unification 4. Collusion
5. (a) 6. (b) 7. (c) 8. (d)
9. True 10. True 11. False 12. True

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