The Basics
- Simple definition: Setting prices so low that competitors cannot compete and are forced to exit the market, after which the predator raises prices.
- Core idea: Short-term losses to eliminate rivals, then long-term monopoly gains.
- Think of it as: The big fish selling at a loss to starve smaller fish, then raising prices once they’re gone.
What It Actually Means
Predatory pricing is controversial – low prices usually benefit consumers, so distinguishing competition from predation is hard. Theory: predator prices below cost (or below profitable level), drive out rivals, then recoup losses with higher prices later. Requires deep pockets to sustain losses and barriers to prevent new entry after raising prices. Proving predation legally requires showing below-cost pricing and intent to monopolize.
Example
A large Pakistani retailer might slash prices below cost in a city where a local competitor operates. Local shop can’t match losses, closes. The retailer then raises prices above previous levels. This is alleged predatory pricing.
Why It Matters (2026)
Big Tech faces predation accusations, as Amazon and Uber allegedly used low prices to dominate. Competition authorities investigate but must avoid chilling legitimate price competition.
Don’t Confuse With
Limit Pricing – limit pricing deters potential entrants; predatory pricing targets existing competitors.
See also
Limit Pricing • Monopoly • Antitrust • Below-Cost Pricing • Recoupment
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