What is the definition of price skimming?

Price skimming refers to the strategy of setting initial prices high when a product is first launched into the market. This approach is typically used for innovative or premium products, where the target audience is willing to pay a higher price for the newest offerings. The goal is to maximize revenue from segments of the market that are less sensitive to price—often referred to as "early adopters"—before gradually lowering the price over time to attract a broader customer base.

This strategy allows businesses to recover their research and development costs quickly and capitalize on the demand of customers who value exclusivity. As competitors enter the market or as demand decreases, the business can lower the price to appeal to more price-sensitive consumers, creating different pricing tiers and maximizing market reach over time.

The other options represent pricing strategies that focus on attracting customers through lower prices or discounts, which do not align with the concept of price skimming.