Editing Predatory pricing (section)

==Concept==
Predatory pricing is split into a two-stage strategy.

The first stage of predatory pricing (predation) involves the dominant firm offering goods and services at below-cost rate which, in turn, leads to a reduction in the firm's immediate short-term profits. This drop in price forces the market price for those goods or services to readjust to this lower price, putting smaller firms and industry entrants at risk of exiting the industry. The principle behind this strategy is that, unlike new entrants and current players, the dominant firm has the size and capital to sustain short-term loss in profits, thus forcing a game of survival that the dominant firm is likely to win.<ref>{{Cite journal|last=Funk|first=Michael|date=25 July 2018|title=The More Economic Approach To Predatory Pricing|journal=Journal of Competition Law & Economics|volume=14|issue=2|pages=292–310|doi=10.1093/joclec/nhy008|via=Advanced Access publication|url=http://www.swiss-economics.ch/RePEc/files/0057FunkJaag.pdf}}</ref>

The second stage is the ''recoupment'', during which the dominant firm readjusts its product and service prices to approach monopoly prices (or a monopoly price, depending on remaining industry players and the dominant firm's market share) to recover their losses in the long-term. This price adjustment can put consumers under pressure, as they are now forced to accept the higher price without any fair-priced competition, thus resulting in consumer harm. This is what differentiates predatory pricing from normal competitive pricing.<ref>{{Cite journal|last=Ursic|first=Micaheal L.|date=1994|title=Using Price as a Weapon: An Economic and Legal Analysis of Predatory Pricing|journal=Industrial Marketing Management|volume=23|pages=125–131|doi=10.1016/0019-8501(94)90013-2|via=Elsevier Science Inc.}}</ref> Under EU law, the [[European Commission]] can account for recoupment as a factor when determining whether predatory pricing is abusive.<ref>[https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:62007CJ0202&from=EN Case 202/07 P] {{Webarchive|url=https://web.archive.org/web/20210309045840/https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:62007CJ0202&from=EN |date=2021-03-09 }}, ''France Télécom SA v Commission of the European Communities'' [2009] ECR I-02369, para 111</ref> This is because predatory pricing can only be considered economically effective if a firm can recover its short-term losses from pricing below Average Variable Costs (AVC).<ref name="Case 62/86">[https://eur-lex.europa.eu/resource.html?uri=cellar:4905ac67-5a02-44a0-ae93-7724be6073b0.0002.06/DOC_2&format=PDF Case 62/86] {{Webarchive|url=https://web.archive.org/web/20210308110005/https://eur-lex.europa.eu/resource.html?uri=cellar%3A4905ac67-5a02-44a0-ae93-7724be6073b0.0002.06%2FDOC_2&format=PDF |date=2021-03-08 }}, ''AKZO Chemie BV v Commission of the European Communities'' [1991] ECR I-03359, para 71</ref> However, recoupment is not a precondition for establishing whether predatory pricing is an abuse of dominance under Article 102 TFEU.<ref>[https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:61994CJ0333&from=EN Case 333/94 P] {{Webarchive|url=https://web.archive.org/web/20210308132553/https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:61994CJ0333&from=EN |date=2021-03-08 }}, ''Tetra Pak International SA v Commission of the European Communities'' [1996] ECR I-5951, para 44</ref> Assessing other factors, such as [[barriers to entry]], can suffice in demonstrating how predatory pricing can lead to foreclosure of competitors from the market.<ref name="European Commission">{{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 71|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>

The use of predatory pricing to gain a foothold in a market in one territory while maintaining high prices in the suppliers' home market (also known as "[[Dumping (pricing policy)|dumping]]") creates a risk that the loss-making product will find its way back to the home market and drive down prices there. This can result in negative effects on the home market and cause harm to domestic supplies and producers. Due to this, countries often have laws and regulations enforced to prevent dumping and other forms of predatory pricing strategies that may distort trade.<ref>{{Cite web |title=WTO {{!}} Anti-dumping - Technical Information |url=https://www.wto.org/english/tratop_e/adp_e/adp_info_e.htm#dumping |access-date=2023-04-24 |website=www.wto.org}}</ref>