Predatory Pricing:
Definition:
Predatory pricing is a pricing strategy in which a company intentionally sets prices for its products or services at a very low level with the aim of driving competitors out of the market. Once competitors are forced to exit, the predatory price may raise prices to recoup losses and establish a monopoly or dominant market position.
Objective:
The primary goal of predatory pricing is not to maximize short-term profits but rather to eliminate competition and gain a dominant market share.
Legal Implications:
Predatory pricing is often considered anti-competitive and is subject to legal scrutiny. Antitrust laws in many countries prohibit the use of predatory pricing to create a monopoly or restrain trade.
Challenges in Proving Predication:
Proving predatory pricing can be challenging, as it requires demonstrating not only that prices are below cost but also the specific intent to eliminate competition. Courts often examine the overall strategy and market conduct. Long-Term Strategy: Predatory pricing is a long-term strategy that requires financial resources to sustain losses during the predatory phase. Success depends on the ability to recoup losses and establish market dominance after competitors exit. In short, predatory pricing involves deliberately setting low prices to drive competitors out of the market, with the ultimate goal of establishing a dominant market position. This strategy is controversial and can have legal implications.