How does the market share maximization pricing objective differ from the market skimming pricing
objective?
What will be an ideal response?
With the market share maximization pricing objective, prices are set (generally fairly low) with the objective of
maximizing market share. The idea behind this objective is that lower prices lead to higher sales volume, which
lead to lower unit costs, which in turn leads to higher long-run profit. This objective is appropriate when demand
is relatively elastic (customers are sensitive to price, so the quantity demanded will increase significantly as price
decreases).
In contrast, in the market skimming method, prices are set very high with the objective of skimming the upper 10
percent of the market. The objective is appropriate when demand is relatively inelastic (customers are not very
sensitive to price). Companies often use this objective if they are unveiling a new technology that is unique to the
industry.
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