Predatory Pricing

Predatory Pricing

Pricing strategy in which a product or service is set at a

very low price with the intention to achieve new
customers (Loss leader), or driving competitors out of
the market or to create barriers to entry for potential
new competitors.
Effects of Predatory Pricing on an
Industry
Short-Term Effects
Predatory pricing in the short term benefits customers due to
lower prices but harms all companies in the industry. In the
short term, predatory pricing creates a buyer’s market where
customers are able to purchase goods at a lower price and “shop
around.”
For companies, profitability declines as competitors actively try
to undercut prices and divert traffic to their business. The
company that survives the price war and remains in the market
is able to reap the long-term rewards and establish
a monopoly in the industry.
Long-Term Effects
After competitors are driven out, the remaining firm is
able to raise prices and recover lost profits in the short
term.
In the long term, customers suffer from higher prices
and the now monopoly company is able to reap the
profits of price appreciation.
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