Editing Predatory pricing (section)

{{Short description|Deliberately undercutting prices to eliminate competition}}
{{Competition law}}

'''Predatory pricing''', also known as '''price slashing''', is a commercial [[Pricing strategies|pricing strategy]] which involves reducing the retail prices to a level lower than competitors to eliminate competition. Selling at lower prices than a competitor is known as [[undercutting]]. This is where an industry [[Article 102 of the Treaty on the Functioning of the European Union#Dominance|dominant]] firm with sizable [[market power]] will deliberately reduce the prices of a product or service to loss-making levels to attract all consumers and create a [[monopoly]].<ref>{{Cite web|title=Glossary of Statistical Terms|url=https://stats.oecd.org/glossary/detail.asp?ID=3280|date=January 3, 2002|publisher=OECD|access-date=April 22, 2020|archive-date=August 6, 2020|archive-url=https://web.archive.org/web/20200806114750/https://stats.oecd.org/glossary/detail.asp?ID=3280|url-status=live}}</ref> For a period of time, the prices are set unrealistically low to ensure competitors are unable to effectively compete with the dominant firm without making substantial loss. The aim is to force existing or potential competitors within the [[Industry (economics)|industry]] to abandon the market so that the dominant firm may establish a stronger market position and create further [[barriers to entry]].<ref>{{Cite web|title=Guidance on the Commission's Enforcement Priorities in Applying Article 82 of the EC Treaty to Abusive Exclusionary Conduct by Dominant Undertakings|url=https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52009XC0224(01)&from=EN|date=February 24, 2009|publisher=European Commission|at=Paragraph 63|access-date=April 22, 2020|archive-date=March 19, 2020|archive-url=https://web.archive.org/web/20200319184730/https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52009XC0224(01)&from=EN|url-status=live}}</ref> Once competition has been driven from the market, consumers are forced into a monopolistic market where the dominant firm can safely increase prices to [[Recoupment|recoup]] its losses.<ref>{{Cite web|title=Predatory Pricing|url=http://www.oecd.org/competition/abuse/2375661.pdf|year=1989|publisher=OECD|access-date=April 22, 2020|archive-date=September 3, 2020|archive-url=https://web.archive.org/web/20200903192333/https://www.oecd.org/competition/abuse/2375661.pdf|url-status=live}}</ref>

The critical difference between predatory pricing and other market strategies is the potential for consumer harm in the long-term. Despite initial buyer's market created through firms' competing for consumer preference, as the price war favours the dominant firm, consumers will be forced to accept fewer options and higher prices for the same goods and services in the monopolistic market.<ref>{{Cite book|url=https://www.fdic.gov/resources/supervision-and-examinations/consumer-compliance-examination-manual/documents/2/ii-2-1.pdf|title=FDIC Consumer Compliance Examination Manual|date=June 2019|pages=II - 2.1|access-date=2020-11-04|archive-date=2021-03-20|archive-url=https://web.archive.org/web/20210320022920/https://www.fdic.gov/resources/supervision-and-examinations/consumer-compliance-examination-manual/documents/2/ii-2-1.pdf|url-status=live}}</ref> If strategy is successful, predatory pricing can cause consumer harm and is, therefore, considered [[anti-competitive practices|anti-competitive]] in many jurisdictions making the practice illegal under numerous [[competition law]]s.