A new budget airline enters the market by pricing its tickets significantly below competitors, deliberately absorbing short-term losses to build market share quickly, planning to raise prices once established. This is an example of:

Correct Answer: B) Penetration pricing — setting a low initial price to quickly gain market share, with the intention of adjusting price later — the airline deliberately sets an initial low price, even absorbing losses, purely to capture market share quickly with the explicit plan to raise prices later — the textbook definition of penetration pricing. Why the other options are excluded: • A (skimming) is the opposite strategy — charging a high initial price to early adopters, then gradually lowering it. • C (prestige pricing) uses a deliberately high price to signal exclusivity and quality — contrary to the low, mass-market entry price described. • D (cost-plus pricing) simply adds a fixed margin to production cost — the scenario describes strategic under-pricing relative to competitors, not a cost-based calculation. Example (Pension Sector): PFRDA's cap on Pension Fund Managers' charges keeps NPS priced attractively low compared to alternatives like mutual funds or insurance-linked pension plans — though here it reflects a sustained low-cost/value pricing philosophy rather than a temporary penetration tactic.