Predatory pricing has some positive short-term effects for customers, like low prices, but once this practice is successful, it can seriously harm the market. In fact, predatory pricing actually stops healthy competitive markets from producing reasonable prices. However, this shouldn’t be confused with a competitive market. This is because there will then be a sudden rise in price, a decline in choice and a barrier to entry for new businesses. How does predatory pricing hurt consumers?Ĭonsumers may benefit from lower prices in the short term, but can predatory pricing hurt consumers? Simple answer: yes, if the company is successful in eliminating its competition. Not only this, but once a predatory company starts to charge higher prices again, their position as a price leader is then in jeopardy. Fortunately, predatory pricing is not a simple practice and keeping prices low enough for long enough is not something all companies can afford. The company practicing predatory pricing will experience losses by setting prices below cost, but in doing so, they make it impossible for competitors to remain in the market. What does predatory pricing involve?Ĭompanies that partake in predatory pricing will lower their prices when new competitors enter the market, and then raise them again when the competitor exits. Busways was reported and the Monopolies and Mergers Commission (MMC) confirmed that Busways had practiced illegal predatory pricing. They were successful in creating monopoly power, as Darlington Transport Company went out of business. Not only did they offer free travel, but they also attracted bus drivers from their rival by paying higher wages. ![]() Busways (a new entrant into the bus market) offered free bus rides to try and force their competitor, Darlington Transport Company, out of business. There are a number of predatory pricing examples which can be drawn upon, including the 1994 Darlington bus wars. ![]() Penetration pricing, for instance, involves lowering prices by a small percentage for a short amount of time to capture a larger market share. There are various examples of price-lowering strategies which aren’t illegal. If a pricing strategy is set lower for reasons other than eliminating rivals, then pricing is not considered predatory. Pricing is only considered predatory if its goal is to price competitors out of the market. However, it can be hard to prosecute companies for predatory pricing due to the difficulty of distinguishing between fair competitive pricing and illegal predatory pricing. ![]() Predatory pricing is a deliberate act of selling goods at a loss in order to force competition out of the market. Want to know more? Explore everything you need to know with our guide to predatory pricing, right here. Predatory pricing is an illegal practice of deliberately using low prices to eliminate the competition and create a monopoly.
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