![]() They are forced to buy products from predators. When demand is inelastic, and switching costs are high, consumers have no other options. Predators can then raise prices to recover their previous losses. Because competition does not make sense, they prefer to leave the market rather than incur more significant losses.Īfter eliminating competition, predators enjoy monopoly power. Some companies cannot compete and must operate at a loss. Because buyers might not be loyal to specific brands, they surely will buy from the cheapest brands. Competition is becoming increasingly intense, and prices continue to fall. In the short term, consumers enjoy lower price gains. By lowering prices far below market norms, they have the potential to grab consumers from competitors. Predators set prices very low for prolonged periods. Existing competitors are out of the market due to suffering losses.New entrants enter but must operate at a loss so that it immediately exits the market.Potential new entrants are reluctant to enter the market.Predators cut prices to very low levels so that: The main motive of large companies implementing this pricing strategy is to drive competitors out of the market. The high-cost structure makes it difficult for them to sell products at a loss. Hence, such advantages enable them to drop prices. Also, they enjoy a low-cost structure due to economies of scale and economies of scope. A substantial market share allows them to have a significant market power to influence the market. They can offer products and services at prices far below market norms. Large companies are more likely to use this strategy. ![]() One indication of this practice is pricing below average variable costs. Thus, differentiating fair competition from predatory pricing is debatable. Setting low prices is a consequence of increased competition in the market. In some countries, this practice is illegal, even though it is difficult to prove. The aim is to eliminate competition in the market. Predatory pricing is a strategy in which companies set prices very low, far below normal. ![]()
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