![]() ![]() Predatory pricing has short-term positive benefits for customers in the form of ultra-low prices. ![]() These strategies are not illegal because they are not long-term strategies and are rarely intended to operate at a deliberate loss. Legitimate pricing strategies, such as penetration pricing, involve temporarily lowering prices to gain a foothold in the market. While this is the goal of predatory pricing, it's hard to prove intent and easy for companies using predatory pricing to claim some other reason for the low prices. The difficulty when enforcing these laws comes from the fact that, in order to be illegal, the goal of the pricing must be to force competitors out of the market. To that end, most forms of predatory pricing are illegal. Antitrust laws are designed to preserve market competition and minimize monopoly power. Because predatory pricing is designed to drive other competitors out of the market, it is typically viewed as an attempt to gain an illegal monopoly. The United States has a long history of legislation against monopolistic behavior. Is predatory pricing illegal in the U.S.? However, with market dynamics restored, remaining competitors and new entrants once again become a threat. The goal is to reduce competition enough that the profit made during this phase makes up for the predation phase's losses. Stage 2: Recoupment - When the competition has been sufficiently thinned, the predation phase ends and prices are raised back to normal levels.With this strategy, large companies can often force smaller competitors out completely and prevent new competition from getting a foothold. This will put the competition in a position where they must choose to take losses themselves or exit the market. Stage 1: Predation - As long as a company can afford initial losses, they can lower their prices beyond what's financially stable.Instead, a company engaging in predatory pricing will break the strategy into two separate phases: one that damages the competition and another that takes advantage of the weakened competitive field. With enough capital to sustain predatory pricing, a company can end up with a monopoly on the market for a lengthy period of time.īecause predatory pricing relies on pricing products low enough to force other competitors out of the market, it is not a long-term pricing strategy. The company engaging in predatory pricing must take a loss during the predatory phase, but later raises prices when the competition is thinned. By setting prices below costs, other suppliers are unable to compete and have no choice but to exit the market. Predatory pricing is a pricing strategy that relies on undercutting the competition long enough to force them out of the market. Predatory pricing FAQs What is predatory pricing? ProfitWell’s position on predatory pricingĨ. Is predatory pricing illegal in the U.S.?ħ. ![]()
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