Harmony Trade Network

Predatory Pricing

The act of setting prices low in an attempt to eliminate the competition. Predatory pricing is illegal in many countries and is considered anti-competitive behavior.

Predatory Pricing Additional Information

Predatory pricing refers to a pricing strategy used by monopolistic or dominant companies in which they deliberately set their prices below their costs in order to eliminate competition and drive competitors out of the market. This practice can be applied in the context of international trade, where companies may engage in predatory pricing to gain a competitive advantage in foreign markets.

The main objective of predatory pricing is to create significant barriers to entry for potential competitors, which can lead to monopolistic or oligopolistic market conditions. By lowering prices to an unsustainable level, predatory pricing allows the dominant company to undercut its competitors, forcing them to either match the low prices or exit the market altogether. Once the competition is eliminated or significantly weakened, the predatory firm can then raise its prices to recoup its losses and maintain high profits.

There are several reasons why firms might resort to predatory pricing in international trade. Firstly, by monopolizing or dominating a market, companies can enjoy increased market share, which can translate into higher profits and more control over supply and prices. Secondly, predatory pricing can act as a deterrent to potential competitors, dissuading them from entering the market in the first place due to the risk of not being able to compete with the low prices. Lastly, it can also be a strategy to expand into new markets by initially selling products at a loss to gain market share and then gradually increasing prices once competition has been eliminated.

One interesting fact about predatory pricing is that it is often difficult to prove. Companies engaging in predatory pricing can argue that they are simply offering competitive prices or engaging in legitimate price cuts, making it challenging for authorities to prove anti-competitive behavior. Additionally, predatory pricing can be a long-term strategy, as companies may be willing to sustain losses for an extended period to achieve their objective of eliminating competition and gaining market dominance.

Predatory pricing has been a subject of concern for policymakers and competition authorities around the world. It is generally considered anti-competitive behavior as it undermines the principles of fair competition and can harm consumer welfare in the long run. Many countries have implemented legislation and regulations to prevent and address predatory pricing practices, aiming to ensure fair and competitive markets.

Predatory pricing is a pricing strategy used by dominant firms to eliminate competition by setting prices below their costs. In international trade, this practice can be employed to gain a competitive advantage and establish monopolistic or oligopolistic market conditions. While predatory pricing can be difficult to prove and may have long-term effects, it is generally viewed as anti-competitive and subject to regulations to maintain fair and competitive markets.