Final answer:
The scenario describes 'predatory pricing,' where an established company lowers prices to eliminate competition. The strategy asked about in the question is 'market-skimming pricing,' which involves setting high initial prices for new services with large promotional expenses.
Step-by-step explanation:
In the context of the scenario provided, the pricing strategy that is being discussed is known as 'predatory pricing.' This is a strategy where an established business sets very low prices with the intention of driving new competitors out of the market. The established company can sustain the lower expenditures and prices because of its larger size and financial reserves. In contrast, a new entrant, with less capital, has difficulty competing and is likely to incur losses or even exit the market. After eliminating the competition, the incumbent firm has the liberty to raise prices again.
However, the question originally asks about a different pricing strategy where new services are introduced at high prices with significant promotional expenditures. The strategy referred to in the question is known as 'skimming' or 'market-skimming pricing.' This strategy involves setting high initial prices for a new service or product combined with heavy promotion to attract buyers who are less sensitive to price and willing to pay for the novelty or exclusive status of the product or service.