Predatory Pricing

A situation in which a firm sets artificially low prices intended to induce competitor to leave the industry and to dissuade potential rivals from entering the industry.

To utilize a predatory pricing strategy, a company must be large enough relative to its competition that it will be able to maintain below-market prices long enough to squeeze out the smaller competition. Likewise, for the strategy to have any benefit to the company, it must be difficult for new businesses to enter the market. Otherwise, the old competitors will simply be replaced with new ones when prices rise.

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