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There are various legitimate sales strategies that involve the use of competitive price-lowering practices, for example, penetration pricing in which a company temporarily lowers its prices by a small percentage in order to capture a larger market share and penetrate more deeply into the market. If pricing is set lower by a business for reasons other than to eliminate competitors, then pricing is not considered predatory. However, it’s hard to prove monopolization behind predatory pricing, as companies can insist that their pricing was lowered for other reasons. American antitrust laws exist to preserve competition in the market and minimize monopoly power, and according to those laws, most forms of predatory pricing are illegal.Ī pricing strategy is considered predatory if its goal is to price competitors out of the market. Predatory pricing is a monopolistic practice, and there is a long history of legislation against monopolistic behavior in the United States, with predatory pricing coming under that banner. Is predatory pricing illegal in the U.S.? At some point, businesses that practice predatory pricing will have to continue charging higher prices as they were before, which puts their dominant position as a price leader in jeopardy. In many ways, predatory pricing can be thought of as an anti-competitive pricing practice that can only be used in the short run. This stops the regular competitive market from charging reasonable prices for the consumer and retailer. This predatory pricing strategy kicks out new entrants, and makes the barrier to entry much harder for new businesses. So long as the business’ future predicted cash flows are healthy, investors may be willing to shoulder this burden short-term. Investors see such extremely low costs as a good way to increase market share and then to raise prices and create equally extreme profitability further down the line. This predatory pricing practice often results in the formation of monopolies controlling market power for a lengthy period of time.Ī company that can afford the initial losses caused by predatory pricing has an unfair market advantage in the long run. A company that does this will see initial losses, but eventually, it benefits by driving competitors out of the market and raising its prices again. Predatory pricing is a method in which a seller sets a price so low that other suppliers cannot compete and are forced to exit the market. Predatory pricing is the practice of using below-cost pricing to undercut competitors and establish an unfair market advantage. Read on to find out where the boundaries lay and to ensure that your company is remaining legally competitive with its pricing. It can be hard to distinguish fair, competitive pricing from illegal predatory pricing. However, there is a point when such competitive pricing becomes problematic-when it becomes predatory pricing. Lowering your prices just the right amount gives you a better shot at market penetration and at being competitive in a tightly contested field.
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Being strategic with your pricing is one of the surest ways to boost your company’s sales growth.