Predatory pricing

Predatory pricing is a pricing strategy, using the method of undercutting on a larger scale, where a dominant firm in an industry will deliberately reduce its prices of a product or service to loss-making levels in the short-term.[1] The aim is that existing or potential competitors within the industry will be forced to leave the market, as they will be unable to effectively compete with the dominant firm without making a loss.[2] Once competition has been eliminated, the dominant firm now with having a majority share of the market can then raise their prices to monopoly levels in the long-term to recoup their losses.[3]

The difference between predatory pricing and competitive pricing is during the recouping phase of lost profits by the dominant firm charging higher prices. With there being fewer firms in the market causing consumers to have fewer choices between these products or services these higher prices results in consumer harm.[4] Predatory pricing usually will cause consumer harm and is considered anti-competitive in many jurisdictions making the practice illegal under some competition laws.