What is predatory pricing?

What is predatory pricing?

• A. A strategy to lower prices for market expansion
• B. A tactic to monopolize a market by setting low prices
• C. A method of price stability
• D. A practice of increasing prices artificially

Answer: (B)

Predatory pricing is characterized by a tactic aimed at monopolizing a market by setting prices exceptionally low, typically below the cost of production. The purpose of this strategy is to eliminate or severely weaken competition, allowing the predator company to gain a larger market share. Once competitors have been driven out or significantly weakened, the company can then raise prices to recoup losses and maximize profits in the long term. This concept is crucial in understanding market dynamics and the possible unfair competitive practices that can arise in various industries. By using predatory pricing, a company may disrupt the natural competitive equilibrium, which can lead to devastating effects for smaller competitors that cannot sustain their businesses against unsustainable pricing. Ultimately, this behavior can raise legal and ethical questions regarding market manipulation and anti-competitive practices.

Predatory pricing is characterized by a tactic aimed at monopolizing a market by setting prices exceptionally low, typically below the cost of production. The purpose of this strategy is to eliminate or severely weaken competition, allowing the predator company to gain a larger market share. Once competitors have been driven out or significantly weakened, the company can then raise prices to recoup losses and maximize profits in the long term.

This concept is crucial in understanding market dynamics and the possible unfair competitive practices that can arise in various industries. By using predatory pricing, a company may disrupt the natural competitive equilibrium, which can lead to devastating effects for smaller competitors that cannot sustain their businesses against unsustainable pricing. Ultimately, this behavior can raise legal and ethical questions regarding market manipulation and anti-competitive practices.