You just have to look at Coke vs. Pepsi to realize that a little healthy competition can actually be great for business. Unfortunately, not every company sees things that way, and predatory pricing can undermine fair competition. That is unhealthy for a market-based economy and ultimately harmful to consumers.
Predatory pricing is a strategy where a business aims to dominate the market by deliberately lowering its prices to below cost or market value with the sole goal of eliminating its competitors.
What are the key characteristics of predatory pricing?
Essentially, a business sets prices so low they won’t even recoup their baseline costs. While this appears to benefit consumers, the whole point of predatory pricing is to make it impossible for competitors to stay in business. Other times, rival businesses will actually join forces and undercut the market together as a tactic to block a would-be upstart company from even breaking into the market.
Once the competition has been eliminated, of course, the prices of the products go right back up again – usually higher than before – so that the business or businesses can recoup any losses incurred during the predatory period. Predatory pricing essentially has the net effect of eliminating (or drastically reducing) any real consumer choices.
Predatory pricing can become the target of anti-monopolization efforts by the Federal Trade Commission (FTC) and criminal action can be pursued by the U.S. Department of Justice (DOJ). It can also be attacked through civil claims. Whether your business is accused of predatory pricing or you’re the victim of predatory pricing, learning more about your legal options is the best way to protect your interests.