Legal Definitions - Predatory pricing

Predatory pricing occurs when a company intentionally sells its products or services at an extremely low price, often below the actual cost of producing or providing them. The primary purpose of this strategy is not to offer a good deal to customers in the long run, but rather to drive competitors out of business. Once rivals are eliminated and competition is significantly reduced, the dominant company can then raise its prices without fear of losing customers to other providers.

• Example 1: Large Retailer vs. Local Shop

  Imagine a large national supermarket chain opening a new store in a small town that has been served for decades by a beloved independent grocery store. The national chain immediately begins selling popular items like milk, bread, and eggs at prices significantly below what it costs them to stock these goods, and far cheaper than the local store can afford. Internal company emails or strategy documents might reveal that the chain's explicit goal is to force the independent grocer out of business within six months. Once the local store closes, the national chain plans to gradually increase prices to profitable levels.

  This illustrates predatory pricing because the national chain is deliberately selling products below cost with the specific intent to eliminate a competitor and reduce overall grocery competition in that town.

• Example 2: Tech Giant Entering a Niche Market

  Consider a dominant global technology company, known for its operating systems and office software, deciding to enter the specialized market for professional graphic design software. This market is currently served by several smaller, innovative companies. The tech giant releases its new graphic design software as a free download, or bundles it with its existing popular products at no additional charge, even though its development and ongoing maintenance costs are substantial. The company's internal projections show that this strategy will result in significant losses for the first few years, but will ultimately lead to the bankruptcy or acquisition of the smaller design software firms.

  This is predatory pricing because the tech giant is offering a product at a price that does not cover its costs (or even free, implying infinite loss) with the explicit aim of driving out smaller competitors and monopolizing the graphic design software market.

• Example 3: Ride-Sharing Service Expansion

  A well-established, large ride-sharing company decides to expand into a new city where a smaller, local ride-sharing service has a strong and loyal customer base. To quickly gain market share, the large company offers rides at prices that are unsustainably low, sometimes even paying drivers more than it collects from passengers for an extended period, leveraging its vast financial reserves. Their marketing campaign explicitly targets the local service's customers with unbeatable rates. The company's internal strategy is to operate at a loss until the local service can no longer compete and is forced to shut down, after which the larger company plans to raise its fares.

  This demonstrates predatory pricing because the large ride-sharing company is intentionally operating at a loss (selling below cost) to eliminate a specific competitor and gain a dominant position in that city's transportation market.