Limit pricing is a pricing strategy which is designed to deter potential entrants and it
is only the existence of barriers to entry which enables price to be maintained above its
competitive price level. If a new entrant does manage to enter the market, the incumbent
firms could use predatory pricing to force a new entrant out of the market and return
the market to some sort of balance. Predatory pricing is where incumbent firms increase
output and therefore force down market price so that all firms make a loss. Only the
largest will be able to withstand this and the market would return to the previous balance.
If this sort of behaviour was expected prior to entry, the new entrant might not
have entered in the first place.