Predatory pricing

Predatory Pricing (Destroyer Pricing)

Predatory pricing, also known as destroyer pricing, is a controversial pricing strategy employed by some businesses to eliminate competitors from the market. This strategy involves setting prices at an extremely low level, often below cost, to attract customers away from competitors who may struggle to match the low prices and could eventually go out of business.

Key Points

• Eliminating Competition: The primary objective of predatory pricing is to drive competitors out of the market. By offering prices that are unsustainable for rivals, the predatory business aims to create financial difficulties for competition, forcing them to exit the industry.

• Large Businesses: Predatory pricing is typically used by larger businesses that have the financial resources to sustain losses over an extended period. Smaller businesses may not have the capacity to withstand such losses and are more vulnerable to this strategy.

• Illegal Practice: In many jurisdictions, predatory pricing is considered illegal because it violates antitrust and competition laws. It is viewed as an anti-competitive practice that harms both consumers and the market by reducing choice and fostering monopolistic behaviour.

• Infamous Cases: Some well-known cases of predatory pricing have faced legal scrutiny. For example, when The Times newspaper was sold for just 10p, it significantly harmed rivals and was deemed unfair competition.

Example

A large retail chain uses predatory pricing to undermine smaller, local businesses. The retail chain sells certain products at prices well below their cost for an extended period, attracting customers away from the local competitors. Unable to match the low prices or sustain losses, several local businesses are forced to close, leaving the retail chain as the dominant player in the market.

In summary, predatory pricing is a controversial pricing strategy where a business intentionally sets very low prices, often below cost, to drive competitors out of the market. This strategy is typically used by larger companies with the resources to withstand losses.