Question

The company has the largest market share in the industry. In order to restrain the smaller competitors in the market, the company sells some of its products at very low prices. This is an example of ________ pricing.

Answer 1

The given excerpt is an example of predatory pricing .

Explanation:

Predatory pricing is a pricing strategy that identifies a product or service at a very low price, aimed at new customers or at taking competitors off the market or at creating barriers for new potential competitors.

However, it is hard to prosecute the claims of this activity because defendants make an argument that low prices are part of normal trade instead of a concerted attempt to disrupt the economy. Yet predatory prices are always not efficient because of the problems of restoring lost revenue yet removing rivals effectively.

Consumers may benefit from lower prices in the shorter term, but they will suffer if the strategy succeeds in reducing competition, and prices increase and choice decreases.