Eurotunnel, due to open in 1993, will link Great Britain with mainland Europe. Massive cost overruns have cast some doubts on its future profitability, but this article shows how its cost structure gives it critical advantages in pricing against its competitors. The prospectus assumption is that Eurotunnel and the ferries will charge broadly similar fares. In this article, we show that substantially undercutting ferry charges is a far more profitable strategy. Moreover, this result holds even if consumers regard the tunnel as a superior service and is robust to any response by the ferries themselves. Their best strategy is to seek niche markets and avoid direct competition with the tunnel. The article draws parallels for other firms introducing new products by applying new technology in established markets.