Predatory pricing (AS/A LEVELS/IB/IAL)

Predatory pricing

• This pricing strategy involves cutting prices below the average cost of production in the short run.
• Firms that are already in the market will struggle to compete with these extremely low prices and exit the market.
• The firm that used predatory pricing will then increase its prices in the long run to maximise profits. They are able to do this because of the reduced competition.
• Predatory pricing is also illegal in UK.