Expansionary prices strategy
The strategy is applied to products with a high price elasticity of demand, so that low prices leads to a substantial increase in sales volume. This strategy is used by many countries to open new markets and expand existing ones. Often companies place cheap and standard products on the market, in order to gain acceptance of customers to their brands. Later, however, they bring more expensive versions and models. Such pricing practices are often closely followed up by the appropriate governmental authorities in order to safeguard against possible use of dumping. In extreme cases, dumping is likely to force the company to go out of business in the countries in which it is applied.
The expansive prices strategy was applied effectively by the publishers of magazines and newspapers in the United States. Circulation of many famous magazines and newspapers have been drastically increased by low rates for annual subscriptions. Benefits for publishers was large due to higher fees for advertising. This is related to the amount of circulation. In a similar way book clubs, CD and movie rentals use this strategy to expand their customer base.
- Williamson, O. E. (1977). Predatory pricing: A strategic and welfare analysis. The Yale Law Journal, 87(2), 284-340.