Example Of Predatory Pricing Strategies

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Predatory pricing: It’s actual effectiveness

Predatory pricing is an anticompetitive strategy that indents to drive competitors out of the market and gain monopolistic profits. The predatory firm first lowers its price, to an extent which the revenue of the product does not cover the costs. Their competitors must then lower their prices below their average cost, thereby losing money as their products are sold. If they do not cut their prices, they will lose customers due to higher prices; if they do cut their prices, they will eventually go bankrupt. (DiLorenzo, 1992)
If the predatory firm manages to survive longer, which in most cases they will, they will eventually gain a monopolistic position. The modern antitrust law intends to prevent damage to consumer welfare and reduce the incentive of achieving excellence by outlawing anticompetitive behaviors. However, presently some people still believe that …show more content…

Koller, the author of “The Myth of Predatory Pricing,” after judging 23 cases that contains enough information, found out that actual predation was attempted in seven cases (30 percent) and succeeded in only four (17 percent). However other researchers did not come up with similar results. For example, Zerbe and Cooper examining the same cases beginning in 1940 and updated to 1982 concluded that predatory pricing was present in 27 out of 40 studied cases. (Bolton, P. and Joseph, B. and Riordan, M., 1999). These studies are only based on court cases and the settlements, which are more likely to be strong cases, have not been accounted in the study. So, the actual number of cases of a business conducting predatory pricing will be even more. Even Koller, who is against the legitimacy of predatory pricing, have to admit that 17% of predatory pricing actually worked. Considering the more recent study, more advanced techniques, like econometric measures, have been

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