Final answer:
The statement is true; penetration pricing aims to attract a large customer base with initially low prices, and firms plan to raise prices after establishing market dominance or driving away potential competition.
Step-by-step explanation:
The statement that success in penetration pricing depends on generating numerous trial purchases is true. Firms often use penetration pricing with the intention to increase prices once the product gains market share. This strategy is employed to attract customers by setting initially low prices, with the expectation that the customer base will expand rapidly. After achieving a substantial market presence or eliminating potential competition, the firm has the leverage to raise prices without the fear of losing all its customers.
Penetration pricing can deter new entrants from competing in the market as they may fear the existing firms might lower their prices to unsustainable levels, a practice sometimes referred to as predatory pricing. This tactic is aimed at driving competitors out before raising prices again. Examples include large airlines cutting costs to outcompete new entrants or credit card companies imposing restrictions to influence consumer behavior towards payment methods with lower fees.