Pricing Strategies : Predatory 1.3.3

Predatory pricing - When prices are set low for a short period of time to force competitors out of the market.

Prices are then put back to where they were previously or even higher.

This strategy is used by dominant businesses, who can afford to make a loss in the short run, to force new entrants out of the market.

This is deemed as illegal in the UK.

Once existing firms have been driven out and entry of new firms deterred, it can raise its prices.

This is ANTI-COMPETITIVE and therefore not in the best interest of consumers in a market.

The existing competitors in the market see the new entrant about to launch - and immediately begin to lower prices to retain their customers

If the new entrants cannot match the lower price (or provide a product which customers still belive represents value for money) then they may have to choose not to enter the market.

The big loser in this is the customers. They are denied a wider choice in products. This therefore means price has become a barrier to entry.

The use of predatory pricing it's quite hard to prove. What is the difference between a significant price discount being offered as a part of a sales promotion and so-called predatory pricing? One key consideration is the period of discounted prices. Is it just for a short period? Or is it sustained over a relatively long period so that it has the desired competitive effect?