Question

What is predatory pricing? What federal acts make it illegal? How are consumers hurt by predatory pricing you must go into great detail? Give two potential product examples of predatory pricing. Also describe a situation a marketer might face that might be legal but might not be ethical.

Answer 1

Predatory pricing is referred to deliberately price a product at extremely low rates such that other firms in the industry can not afford to sell their product at that price. It is also known as undercutting. In such a situation a dominant firm in the industry will set the price of a product so low that its competitors cannot survive in the market.

Predatory Pricing is illegal as it is contrary to the antitrust law, it violates the law. The government has set high standards if Predatory Pricing is practiced. In the beginning, Predatory Pricing may be beneficial to the customers. Since the dominant firm reduces the prices low enough that competitors cannot survive but customer have to pay lesser for the product. In the long run however, this can be very dangerous. Once the competition is done away with, the dominant firm will increase the prices since the situation in the market for the product is next to monopoly and hence the customers are price takers. Left with no other option, customers will have to now pay the asking price which is higher than what it used to be before Predatory Pricing was used.

Amazon.com is a live example of Predatory Pricing. The website has been offering books at prices that no publisher can afford to sell its product that. This could be an attempt to do away with publishing houses and be the sole seller of the books.

Walmart and Target drug war is another example where, Walmart to create monopoly started giving certain drugs that were prescribed by the doctor to the patients at a price that was lower than the floor price that was set for them. Similar is the Darlingtion bus war, where a bus company went on to give free rides to get rid of competition.

The example of the Darlington bus war where the service was given for free is a situation that is legal but not ethical. A marketer may find out that people demand for say service X (Skin Care). He can give this service (skin care) for free under promotion activity. This is legal and cannot be questioned since the act has been justified. This however is illegal since it will lead to competition leaving the industry.