Definition of Price Skimming

Price skimming is derived from skimming the cream out of milk. In other words, getting best out of a product by charging high prices during the initial phase of a product’s life cycle is called the price skimming. When a new product is introduced with no one in competition, gives the pioneers a competitive edge and allow them to charge the highest prices. This is a strategy to maximize the profits as in future they have to lower down the prices due to competition.

Example of Price Skimming:

When the first smartphone was introduced by Apple, the prices were very high as no one was selling smartphones at that time. This is when normally companies skim prices.  Now that the technology is adopted by many others like Samsung giving users the same features at lower rates, Apple has to lower the prices to stay in the market.