price skimming advantages and disadvantages

Price skimming is a pricing strategy of maximising profits in which a product is offered at high price and then lowered later in the product's life cycle or when competition begins to enter the market. For example: Nokia, Sony, Apple, etc. when they introduce a new technology then high price is charged for the product but when competition begins to enter the market then the price is reduced.  

Advantages of price skimming

1) It helps the company to generate additional funds for conducting research and development for its project.
2) It allows the company to capture consumer surplus if the target market is quality conscious rather than price conscious.

Disadvantages of price skimming

1) If government imposes restrictions of pricing, then this strategy cannot be implemented.
2) This strategy allows potential competitors to enter the market by selling the same product at a lower price.

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