What is Predatory Pricing?

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Predator pricing is a strategy often employed by commercial organizations in a bid to attain market dominance, through the use of conquer by elimination tactics. Perpetrators of this practice have a lion’s appetite for greater profits, however achieved. And their actions lead to monopolies or oligopolies in the market capable of manipulating it, however they wish.

The ‘predators’ often take advantage of misinformation which it unleashes to its hapless competitors, as a way duping them in relation to the level of its own production costs. This is done on the basis of falsehoods intended to paint a picture of less than ideal levels of profitability, which will mostly likely be blamed on low prices.

Clearly, manipulation centered on simple factors of shallow demand or costs will not on their own persuade the targeted firms to view things differently. Instead, the greedy entity will highlight the relevance of the smaller firm with its own creditors.

Furthermore, the predatory company has to pin its pricing theories around a credible threat in the market to itself and the competitors, and thus be in a position to raise a valid elimination argument.

The entire market mix could remain unchanged during the course of the rogue firm’s predatory scheming or new developments involving fresh entrants to the very same market may also unfold.

And therefore the predator calculates his actions with all possible scenarios at play, and to some extent shift the permutations in the same low-price mode. This prejudiced view from the vantage informational point enjoyed by the dominant firm is unchanging throughout the manipulative campaign, on the grounds of an inter-temporal arbitrage between short-term profit and long term high profits.

Any losses suffered during the process of eliminating a competitor(s) due to the low prices are usually recovered in the bumper harvests associated with monopoly. And low prices generally translate to greater well-being of consumers and the community, hence the government takes a keen interest on issues surrounding pricing.

However, it is not easy for competition authorities to positively identify a situation of low prices as a result of normal competition or that of predation. The makings of the applicable antitrust policy regarding predation should particularly be well formulated or it is bound to be highly ineffective.

The general capacity to clearly isolate relative evidence aimed at sanctioning a practice of predation is typically low, rogue firms are clever enough to maintain prices high to avoid any penalties. This in turn works against the consumer who does not take advantage of what price competition brings.

 

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