Definition of Predatory Pricing
What does the term "predatory pricing" mean? What is the definition of the term "predatory pricing"?
"Predatory pricing" is the practice of selling something (service or product) at such a low price that it drives competitors (or potential competitors) out of the market.
Once the competition has been eliminated or severely restricted, the company that engaged in the predatory pricing will be free to charge whatever they want for the product in question.
Sound underhanded? Many countries have rules outlawing "predatory pricing", as it is deemed to be anti-competitive.
The problem? Proving that a company is engaging in "predatory pricing" can be very tricky.
Let's look at an example of "predatory pricing".
A mega-store moves into a small town.
The manager of the mega-store decides to sell items such as butter, milk and flour at an extremely low price - so low, in fact, that the mega-store will lose money on the sale of every one of these items.
The manager of the mega-store embarks on this strategy in order to force local stores out of business. When the local stores go out of business, the mega-store will have a virtual monopoly in the town.
This practice, strictly speaking, is illegal. However, as I said, proving that a company has engaged in "predatory pricing" can be quite difficult, especially if the company is well-funded and has the best lawyers.
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