Question

In: Economics

Why is predatory pricing unlikely to occur when all firms are identical? Are there any defensive...

Why is predatory pricing unlikely to occur when all firms are identical? Are there any defensive strategies that a firm can adopt against predatory pricing?

Solutions

Expert Solution

Answer: Predatory pricing: It is the way in which prices of goods and services at such a low level that other firms especially small firms cannot compete and are forced to leave the market. It is also known as undercutting or pricing below cost.

Reasons for predatory pricing unlikely to occur when all firms are identical:

  • predatory pricing happens when a firm sells a good or service at a price below cost with the intention of forcing competitive firms to kick out of the business.
  • whenever there is a cut-throat competition in identical firms, firms go for predatory pricing.
  • It is done by the dominant player with high market share and deep pockets.
  • For eg. if the telecom sector has been disrupted by a new entrant they go for predatory pricing and in this smaller players are not able to survive in the market.

There are some defensive strategies that a firm can adopt against predatory pricing:

  1. Defensive strategies are those strategies that are used to discourage the capturing market by lowering the price in such a way that other competitors cannot survive.
  2. In this small businesses should be innovative while launching the product or delivering the services.
  3. Create a value proposition in order to deal with competitors that why should your product customer should purchase.
  4. a govt. should make stringent laws in order to counter this and competition trust should be promoted.

Rahul Sunny answered 7 months ago
Next > < Previous

Related Solutions

This question deals with internal economies of scale, when firms are not all identical and there...
This question deals with internal economies of scale, when firms are not all identical and there is an option to engage in horizontal foreign direct investment (FDI). This entails paying some fixed cost (F) to set up a plant in a foreign country. Setting up a plant means that firms do not have to pay the per unit export cost (t) when selling units of output to the foreign country. You can think of firms as differing in terms of...
What is the basic difference between limit pricing and predatory pricing? Under the Areeda-Turner guidelines, when...
What is the basic difference between limit pricing and predatory pricing? Under the Areeda-Turner guidelines, when would predatory pricing be prosecuted?
In a particular market there are several hundred firms, all of the firms produce an identical...
In a particular market there are several hundred firms, all of the firms produce an identical product, and it is easy to get in and out of the market. At the current market equilibrium we observe the following for a typical firm: P=100 MC=100 ATC=75 Find the firm's marginal revenue Is this firm maximizing profit? Explain how you can tell. Find the firm's profit. What two things must be true for a competitive market to be in a long run...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm’s total cost is given by the equation TC = 120 + q2 + 2q where q is the quantity of output produced by the firm. You also know that the market demand for this product is given by the equation P = 1200 – 2Q where Q is the market quantity. In addition you are told that...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm’s total revenue is given by the equation TR = q.p; where q is the quantity of output produced by the firm and p the market price (=P). The market demand for this product is given by the equation P = 5000 – 9Q where Q is the market quantity. In addition you are told that the market...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm’s total revenue is given by the equation TR = q.p; where q is the quantity of output produced by the firm and p the market price (=P). The market demand for this product is given by the equation P = 5000 – 9Q where Q is the market quantity. In addition you are told that the market...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm’s total cost is given by the equation. TC = 100 + q^2 + q where q is the quantity of output produced by the firm. You also know that the market demand for this product is given by the equation P = 1000 - 2Q where Q is the market quantity. In addition, you are told that...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost...
Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm’s total cost is given by the equation where is the quantity of output produced by the firm. You also know that the TC=200 +q^2+q where q is the quantity of output produced by the firm. You also know that the market demand for this product given by the equation P= 1000-2Q where Q is the market quantity....
Consider a market with two firms, where the firms manufacture commodities that are identical in all...
Consider a market with two firms, where the firms manufacture commodities that are identical in all respects. Firm i produces output level qi , i = 1, 2, and q = q1+q2. The market demand curve is p = a−bq where a and b are positive constants. Firm i earns profits πi(q1, q2) = pqi − ciqi , where ci is its unit-cost of production. Assume 0 < ci < a for i = 1, 2. Finally, assume that Firm...
Explain why the following annual results for two stocks would be very unlikely to occur. Mean...
Explain why the following annual results for two stocks would be very unlikely to occur. Mean Standard Deviation Stock A 4.4% 5.1% Stock B 7.2% 3.6% If these were predicted figures for the coming year and you were asked to predict a more appropriate standard deviation for Stock A based on an assumption of constant risk-return ratio, what figure would you predict?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT