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Main / Glossary / Examples of Predatory Pricing

Examples of Predatory Pricing

Predatory pricing refers to a strategic pricing practice employed by dominant market players with the intent to drive out or deter potential competition. This tactic involves setting prices so low that competitors face significant challenges in matching or sustaining them. While predatory pricing can foster temporary consumer benefits through lower prices, it ultimately aims to eliminate competition and enable monopolistic control over the market.

In the finance and business sectors, examples of predatory pricing often arise in the context of aggressive pricing strategies adopted by large corporations. By leveraging their financial might and economies of scale, such companies can sustain lower prices for an extended period, effectively squeezing out smaller competitors. Here, we explore a range of scenarios where this exploitative pricing strategy has been observed:

1. The Retail Sector:

In the retail industry, predatory pricing can manifest in various ways. For instance, a large chain store might substantially reduce prices on certain products to undercut smaller, independent stores. By absorbing short-term losses, the chain store aims to drive the competition out of business. Once competitors are eliminated, the chain store can regain its market dominance and potentially raise prices to recoup any previous losses.

2. Online Marketplaces:

Predatory pricing strategies are particularly prevalent in online marketplaces. E-commerce giants often engage in aggressive pricing practices to capture a substantial market share. By selling products at unsustainable prices, these companies can drive smaller online retailers or sellers out of the market. Such tactics hinder competition and allow the dominant players to establish a virtual monopoly.

3. Telecommunication Industry:

The telecommunication sector has witnessed instances of predatory pricing as well. A large telecom company might offer exceptionally low prices or attractive bundled services to entice customers away from smaller service providers. By doing so, they aim to erode the customer base of their competitors, making it financially unviable for them to continue operations.

4. Airlines:

In the airline industry, predatory pricing can be observed when a major airline heavily reduces fares for specific routes, particularly those served by smaller competitors. Taking advantage of their fleet size and operational efficiency, the larger airline can maintain lower prices until the weaker players are driven out of business. Once the competition is eliminated, the dominant airline can reclaim control over pricing.

5. Subscription Services:

Predatory pricing can also occur in the realm of subscription-based services. A prominent streaming platform, for example, might offer an incredibly low introductory price or an extended free trial period to attract a substantial number of subscribers. Smaller competitors may struggle to match these offers, eventually leading to their market exit.

It is essential to recognize that predatory pricing, while potentially benefiting consumers in the short term, can have detrimental effects on overall competition and market health. Antitrust laws exist in many countries to regulate and prevent such unfair practices, encouraging healthy competition and protecting businesses from monopolistic behavior.

In conclusion, examples of predatory pricing can be found across various industries, including retail, e-commerce, telecommunications, airlines, and subscription services. Identifying and addressing these practices is crucial to uphold fair competition and ensure a level playing field for businesses large and small.