What is 'Predatory Pricing'
Predatory pricing is the act of setting prices low in an attempt to eliminate the competition. Predatory pricing is illegal under anti-trust laws, as it makes markets more vulnerable to a monopoly. Companies may engage in a variety of activities that intend to drive out competitors, such as create barriers to entry for new competitors or unethical production methods to minimize costs.
BREAKING DOWN 'Predatory Pricing'
A sign of predatory pricing can occur when the price of a product gradually becomes lower, which can happen during a price war. This is difficult to prove because it can be seen as a price competition and not a deliberate act.
In the short term, a price war can be beneficial for consumers because of the lower prices. In the long term, however, it is not beneficial as the company that wins a price war, effectively putting its competitor out of business, will have a monopoly where it can set whatever price it wants.