What Is Predatory Pricing?

Predatory pricing is the illegal business practice of setting pri🌄ces for a product unrealistically low to eliminate the competition.

Predatory pricing violates antitrust laws, as its goal is to create a monopoly. However, 𒆙the practice can 🤡be difficult to prosecute.

Defendants🌟 may argue that lowering prices is a normal business practice in a competitive market rather than a deliberate attempt to undermine the marketplace.

Predato🥀ry pricing doesn’t always work🎃, since the predator as well as the competition is losing revenue. The predator must raise prices eventually. At that point, new competitors will emerge.

Understanding Predatory Pricing

To understandꦦ how predatory pricing affects markets, and eventually consumers, it is necessary to take a lo🎀ng view.

Consumers enjoy the short-term benefits of competitive pricing. Heightened competition creates a 澳洲幸运5开奖号码历史查询:buyer’s market in which the consumer can make the most of lower prices, increased🐠 leverage, and 💖wider choice.

However, if one company cuts its prices unrealistically low or even below cost, oth🐷er competitors will be forced to abandon the market.

At that point, the advantages for consumers quickly evaporate—or even reverse. A monopolistic marketplace allows a single producer to raise prices, safe in the knowledge that the consumer has no alternatives.

Workers also may suffer, as the company that retains a monopoly has no competition for labor. That can lead to lower wages.

The Effects of Predatory Pricing

In order to drive all rivals out of a business, the predator must cut prices below its manufaꦡcturing costs. Once the initial competitors have been eliminated, the predatory𒀰 company will raise prices back to normal or above normal.

This hurts consumers at first, who have no alternatives but to acc🥂ept the higher pricing. However, it also creates an opportunity for new, rival companies to emerge or for old compe𒁏titors to re-enter the market.

At this point, they can offer competitive prices that are equal to or lower than the original predatory company's.

Eventually, consumers may be given more choices again. However, if the company's monopoly has grown past a certain point, it may no longer be feasible for new companies to emerge, creating a permanent monopoly in that market.

The Challenges to Predatory Pricing

Fortunately for consumers, predatory pricing isn't an easy strategy to pull off. Eliminating all rivals in a given market comes with considerable risk.

For instance, if a town has many gas stations, any one of them could attract more business by c🦄utting prices deeply. Sustaini🍸ng those prices long enough to kill off the competition is harder.

Even if a company can use predatory pricing to drive c𝕴ompetitors out of business, 🍰the strategy will succeed only if the revenue lost to the predatory company through the lower pricing can be recouped quickly.

As soon as the sole gas station raises its prices to normal levels, other com♍petitors will spot an opportunity and step in.ꦡ

Dumping As Predatory Pricing

Dumping is a form of predatory pricing🍌 practiced by businesses attempting to dominate a foreign mark𝔍et.

Typically🌜, businesses that practice dumping sell their products i𝓰n a foreign market for cheaper than they can at home.

An increasingly global marketplace has added a new risk to those attempting to dump products: Some dumped goods are bought abro🌱ad and then shipped back to the home country to be sold at higher prices.

Dumping Gone Wrong

A famous cautionary tale from the early 20th century involved dumping by a German cartel that controlled the European market for bromine, then an essential in🌠gredient in many medicines and a vital element in photography.

After the American company Dow Chemical started exporting competitively priced bromine to Europe, th🀅e Germans retaliated by exporting bromine to the U.S. for sale at below their manufacturing cost.

Dow responded by simply buying the bromine stateside at the dumped price and reselling it profitably in Europe. This allowed the company to strengthen its European customer base at the expense of the German cartel.

Legal Risks of Predatory Pricing

Prosecꦿution of predatory pricing is difficult, given that the prosecutors are trying to prove that loꦜw prices can be a bad thing and even an illegal one.

The 澳洲幸运5开奖号码历史查询:Federal Trade Commission (FTC) says it examines allegations of predatory pricing carefully but that the courts have been skeptical of such claims.

The U.S. Depart𝓀ment of Justice (DOJ) h⭕as asserted that predatory pricing is a real problem and that courts have adopted an overly cautious view of the practice.

A high bar has been set on antitrust claims in general. The U.S. Supreme Court requires that plaintiffs show a likelihood that the pricing practices will affect not only rivals but also competition in the market as a whole to establish that there is a substantial probability that the attempt to monopolize will succeed.

Further, the court established that predatory pricing must be not just aggressively low but actually below the seller’s cost.

Example of Predatory Pricing

The U.S. government's attempts to prevent predatory pricing involve its effort to crack down on exporters who sell their products too cheaply in the U.S.

The International Trade Commission of the Commerce Department defines too cheaply as "less than fair value."

Any U.S. company can file a petition against any foreign company that it believes is s𒁃elling its goods at less than fair market value.

Some complaints of the early 2020s included a wide range of products from many countries, e.g., frozen shrimp and steel nails shipped from India and lemon juice from Brazil and South Africa.

If the International Trade Commission finds that an importer has sold its products for less than fair market value, it has the power to impose𝓡 a duty at a rate that is calculated to eliminate any benefit derived froꦕm dumping goods.

The Bottom Line

Is that product an example of predatory pricing or just a great bargain? From the consumer's viewpoint, it's hard to tell.

If it's predatory pricing, the low prices will last only long enough for the manufacturer to drive its rivals out of business. At that point, it must raise prices to make up for the losses it incurred by cutting its prices so low.

And it canꦗ raise prices with impunity, now that the competition has been eliminated. This is a disadvantage for both consumers and workers. Pr♚edatory pricing violates antitrust laws and, if proved in court, may have severe legal consequences for the company engaging in this strategy.