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LSDefine
Simple English definitions for legal terms
price/cost analysis
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A quick definition of price/cost analysis:
Price/Cost Analysis: A way to figure out if a company is trying to cheat by selling things too cheaply. This is done by looking at how much it costs the company to make the thing they are selling and comparing it to the price they are selling it for. If the price is lower than what it costs to make, it might be a bad thing for competition.
A more thorough explanation:
Price/cost analysis is a method used to determine if a company is engaging in predatory pricing. This is done by examining the relationship between the prices a company charges and its average variable cost or average total cost.
For example, if a company is selling a product for $5, but it costs them $6 to produce, they may be engaging in predatory pricing. This is because they are selling the product for less than it costs to make, which can drive competitors out of business.
Another example would be if a company is selling a product for $10, and it costs them $5 to produce. This may not be considered predatory pricing because they are selling the product for more than it costs to make.
Price/cost analysis is important in antitrust cases because it helps determine if a company is engaging in anti-competitive behavior. By selling products for less than it costs to make, a company can drive competitors out of business and gain a monopoly in the market.