A skimming pricing strategy is more commonly used by firms to:

• A. discourage new competitors from entering the market
• B. quickly gain market share by setting a low initial price
• C. maximize profits by initially charging a high price to early adopters
• D. respond to government-imposed price ceilings

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of a skimming pricing strategy. This strategy involves setting a high initial price for a new product to 'skim' segments of the market willing to pay more, typically early adopters.
2. Step 2: Recognize the goal of skimming pricing, which is to maximize profits from these early adopters before gradually lowering the price to attract more price-sensitive customers.
3. Step 3: Compare skimming pricing with other strategies, such as penetration pricing, which sets a low initial price to quickly gain market share, and understand that skimming is not aimed at discouraging competitors or responding to price ceilings.
4. Step 4: Analyze why skimming pricing is effective when the product is innovative or has little competition initially, allowing firms to capitalize on high willingness to pay.
5. Step 5: Conclude that the primary purpose of skimming pricing is to maximize profits by initially charging a high price to early adopters, rather than quickly gaining market share or deterring competitors.