What is predatory pricing?

Predatory pricing is defined as a pricing strategy where a product is set at a very low price with the intent to eliminate competition from the market. This tactic is typically employed by larger companies with enough resources to absorb short-term losses in order to drive out smaller competitors who may not have the financial capability to compete with such low prices. Once the competition has been eliminated, the company may then increase prices to recoup losses and establish a dominant position in the market.

This approach is considered anti-competitive and can be illegal in many jurisdictions because it undermines fair market practices. It often leads to a lack of choices for consumers and potentially higher prices in the long run once the competition is diminished. Thus, understanding predatory pricing is crucial for consumer rights, as it can impact both market dynamics and consumer welfare.