Question

What is predatory pricing?

Short answer

to close down, and then the large chain can raise its prices back up. #tag_title# Rationale Behind Predatory Pricing #tag_content# The rationale behind predatory pricing is to gain market share by forcing competitors out of business or deterring new entrants. Once competitors are weakened or eliminated, the predatory firm has more control over market prices and can potentially raise prices to recoup losses incurred during the predatory pricing period. #tag_title# Consequences for Predators and Competitors #tag_content# Predatory pricing can lead to the elimination of competition and create a monopoly or oligopoly situation. Competitors may be forced to exit the market, face financial difficulties, or be acquired by the predatory firm. Society may face higher prices and reduced choices in the long run, as the predator can raise prices after successfully driving out competitors. However, if a predator fails to eliminate its competitors, it may suffer significant losses due to the prolonged period of selling below cost. Short Answer: Predatory pricing is a strategy used by firms to sell products or services below their costs to drive competitors out of the market or deter potential entrants. This is done to gain market share and control prices. Examples include large chain supermarkets offering incredibly low prices in new areas to eliminate smaller local stores. The consequences of predatory pricing can lead to monopolies or oligopolies, reduced competition, and higher prices for consumers in the long run.

Step-by-step solution

Definition of Predatory Pricing

Predatory pricing is a strategy employed by some firms with the goal of driving their competitors out of the market or deterring potential entrants. They do this by selling products or services at prices below their costs for a certain period.

Example of Predatory Pricing

One common example of predatory pricing is when a large chain supermarket enters a new area and offers products at incredibly low prices (even below their cost) for several months. This can cause local, smaller grocery stores to either lower their prices (losing money) or lose customers. At some point, the local stores may be forced