Th3.4: Predatory Pricing

Question 1

When does predatory pricing occur?

Answer 1

when an established firm is threatened by a new entrant or if one firm feels that another is gaining too much market share

Question 2

What will the established firm do?

Answer 2

set such a low price that other firms are unable to make a profit and so will be driven out of the market. the existing firm then puts their price back up

Question 3

What is the issue with this method?

Answer 3

it is illegal and only works when one firm is large enough to be able to have low prices and sustain losses