The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Limit Pricing

  • Stephen Martin
Reference work entry


The central idea of limit pricing is that an incumbent monopolist or collusive group will or can forestall entry by charging some price below that which maximizes static own profit. But a strategic price response is only one possible incumbent response to entry. A full understanding of the determinants of equilibrium market structure in inherently oligopolistic industries must take the full range of possible responses into account.


Advertising Commitment Entry Excess capacity Limit pricing Potential competition Predatory pricing 

JEL Classifications

This is a preview of subscription content, log in to check access.


  1. Allen, B., R. Deneckere, T. Faith, and D. Kovenock. 2000. Capacity precommitment as a barrier to entry: A Bertrand-Edgeworth approach. Economic Theory 15: 501–530.CrossRefGoogle Scholar
  2. Auspitz, R., and R. Lieben. 1889. Untersuchen über die Theorie des Preises. Leipzig: Duncker & Humblot.Google Scholar
  3. Bain, J.S. 1949. A note on pricing in monopoly and oligopoly. American Economic Review 39: 448–464.Google Scholar
  4. Bain, J.S. 1954. Conditions of entry and the emergence of monopoly. In Monopoly and competition and their regulation, ed. E.H. Chamberlin. London: Macmillan.Google Scholar
  5. Bain, J.S. 1956. Barriers to new competition. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
  6. Blackstone, E.A. 1972. Limit pricing and entry in the copying machine market. Quarterly Review of Economics and Business 12: 57–65.Google Scholar
  7. Conlin, M., and V. Kadiyali. 2006. Entry-deterring capacity in the Texas lodging industry. Journal of Economics and Management Strategy 15: 167–185.CrossRefGoogle Scholar
  8. Dixit, A. 1979. A model of duopoly suggesting a theory of entry barriers. Bell Journal of Economics 10: 20–32.CrossRefGoogle Scholar
  9. Forchheimer, K. 1908. Theoretisches zum unvollstandigen Monopole. In Schmoller’s Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft, vol. 32. Munich/Leipzig: Duncker & Humblot.Google Scholar
  10. Friedman, J.W. 1979. On entry preventing behavior and limit price models of entry. In Applied game theory, ed. S.J. Brams and G. Schwodiauer. Wurzburg/Vienna: Physica-Verlag.Google Scholar
  11. Fudenberg, D., and J. Tirole. 1984. The fat-cat effect, the puppy-dog ploy, and the lean and hungry look. American Economic Review 74: 361–366.Google Scholar
  12. Gaskins, D.W. Jr. 1971. Dynamic limit pricing: Optimal limit pricing under threat of entry. Journal of Economic Theory 3: 306–322.CrossRefGoogle Scholar
  13. Geroski, P.A. 1995. What do we know about entry? International Journal of Industrial Organization 13: 421–440.CrossRefGoogle Scholar
  14. Giddings, F.H. 1887. The persistence of competition. Political Science Quarterly 2: 62–78.CrossRefGoogle Scholar
  15. Gunton, G. 1888. The economic and social aspect of trusts. Political Science Quarterly 3: 385–408.CrossRefGoogle Scholar
  16. Kaldor, N. 1935. Market imperfection and excess capacity. Economica 2: 33–50.CrossRefGoogle Scholar
  17. Kreps, D.M., and R. Wilson. 1982. Reputation and imperfect information. Journal of Economic Theory 27: 253–279.CrossRefGoogle Scholar
  18. Liefmann, R.L. 1915. Monopoly or competition as the basis of a government trust policy. Quarterly Journal of Economics 29: 308–325.CrossRefGoogle Scholar
  19. Marshall, A. 1890. Some aspects of competition. Presidential address to the economic science and statistics section of the British Association, Leeds. In Memorials ofAlfred Marshall, ed. A.C. Pigou. London: Macmillan. 1925.Google Scholar
  20. Marshall, A. 1919. Industry and trade. 4th ed. London: Macmillan. 1923.Google Scholar
  21. Milgrom, P., and J. Roberts. 1982. Limit pricing and entry under incomplete information: An equilibrium analysis. Econometrica 50: 443–466.CrossRefGoogle Scholar
  22. Modigliani, F. 1958. New developments on the oligopoly front. Journal of Political Economy 66: 215–232.CrossRefGoogle Scholar
  23. Podolny, J.M., and F.M. Scott Morton. 1999. Social status, entry and predation: The case of British shipping cartels 1879–1929. Journal of Industrial Economics 47: 41–67.CrossRefGoogle Scholar
  24. Salop, S.C., and D.T. Scheffman. 1983. Raising rivals’ costs. American Economic Review 73: 267–271.Google Scholar
  25. Scott Morton, F. 1997. Entry and predation: British shipping cartels 1879–1929. Journal of Economics and Management Strategy 6: 679–724.CrossRefGoogle Scholar
  26. Simon, D. 2005. Incumbent pricing responses to entry. Strategic Management Journal 26: 1229–1248.CrossRefGoogle Scholar
  27. Spence, A.M. 1977. Entry, capacity, investment oligopolistic pricing. Bell Journal of Economics 8: 534–544.CrossRefGoogle Scholar
  28. Sylos-Labini, P. 1957. Oligopolio e Progresso Tecnico. Milano: Giuffrè.Google Scholar
  29. Sylos-Labini, P. 1962. Oligopoly and technical progress. Cambridge, MA: Harvard University Press.Google Scholar
  30. Thomas, L.A. 1999. Incumbent firms’ response to entry: Price, advertising, and new product introduction. International Journal of Industrial Organization 17: 527–555.CrossRefGoogle Scholar
  31. Yamawaki, H. 2002. Price reactions to new competition: A study of US luxury car market, 1986–1997. International Journal of Industrial Organization 20: 19–39.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Stephen Martin
    • 1
  1. 1.