Final answer:
The pricing of a new product at a low price to quickly build market share is known as penetration pricing, which allows businesses to attract consumers effectively, but differs from predatory pricing, which aims to eliminate competition.
Step-by-step explanation:
The pricing strategy described in the question, where a new product is priced low initially to build market share quickly, is known as penetration pricing. This approach is used by companies to attract customers by offering lower prices than competitors. It is different from predatory pricing, which is when a firm aggressively cuts prices below cost to eliminate competition, rather than to build market share. Predatory pricing is often considered an anti-competitive practice and can be illegal. Penetration pricing, however, is a legitimate strategy used to gain a foothold in a competitive market by making the product more accessible and attractive to consumers due to its low price. Over time, as market share increases, prices may be adjusted upward.
However, it's worth noting that penetration pricing may not be sustainable in the long term if not supported by economies of scale or a well-respected brand name. Economies of scale occur when increased production leads to lower costs per unit, making it viable for a business to maintain lower prices. Strong brand recognition also adds value to the product, allowing companies to potentially charge more in the future, once a solid customer base has been established.