What is Predatory Pricing?
Predatory Pricing
This is a pricing strategy where a company sets its prices very low, often below cost, to drive competitors out of the market. Once competition is eliminated, the company can raise prices to increase profits.
Overview
Predatory pricing is a strategy used by companies to gain market share by setting prices extremely low, often below their production costs. The idea is to attract customers away from competitors, forcing them out of business due to their inability to compete with such low prices. Once the competition is eliminated, the company can then increase prices to a more profitable level, which can harm consumers in the long run. This practice can be seen in various industries, such as retail and technology. For example, a large online retailer might sell certain products at a loss to undercut smaller local stores. Over time, if the smaller stores go out of business, the larger retailer can raise prices, leaving consumers with fewer choices and potentially higher costs. Predatory pricing is significant in economics because it raises concerns about fair competition and consumer welfare. While it can lead to lower prices initially, the long-term effects can be detrimental to the market as it reduces competition. This practice is often scrutinized by regulators to ensure that markets remain competitive and that consumers are not harmed by monopolistic behaviors.