Question

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?

Answer 1

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.