Question

Wal-Mart Predatory Pricing Case At issue was whether Wal-Mart, which had built the nation’s largest retail chain with its everyday-low-price strategy, went beyond the legally recognized retail practice of promotional pricing and intended to destroy its competition. A 1993 lawsuit filed against Wal-Mart by a group of independent pharmacies argued that Wal-Mart used predatory pricing. The Arkansas statutes, which were being tested for the first time since passage in 1937, generally forbade businesses from selling or advertising ‘any article or product … at less than the cost to the vendor … for the purpose of injuring competitors and destroying completion.’ Wal-Mart’s attorneys argued in a pretrial brief that what the law described as a ‘product’ shouldn’t be considered to apply to individual items, but rather to Wal-Mart’s ‘market basket’ or full line of products. If the entire line isn’t priced below cost, they contended it wasn’t a violation of the statute. It is obvious that in order to determine a state violation on ‘predatory pricing,’ the court must determine what principle it would accept as ‘nonpredatory’ in pricing below cost. This is indeed a gray area. The second element to be considered under state laws is whether there was an ‘intent’ to injure competition and whether in fact the result of such malice was to injure the competition. The third element was ‘recoupment.’ Were the prices ultimately raised, once the competition was put out of business?

What is predatory pricing?

Why would it matter if prices were ultimately raised once the competition was out of business?”

Answer 1

1.

Predatory pricing refers to the pricing method that makes the firm to put very low price upon the product, being sold in the market. It is used to eliminate or drive out the competitors from the market. It happens when MNCs enter into the new market and keep very low prices (even at loss) on their products to make it avaible to the consumers. At his price level, the local producers are unable to compete and close the production. Finally, they move out of the market. It is the objective of predatory pricing.

2.

If prices are raised after the competitors are out of the business, then it establishes the market of the one firm in the market with sole intention to exploit the consumers. With increase in the prices, and lack of alternatives, will force the consumers to buy the product from the only one or few firms operational in the market. Hence, the fair competition will be lost, monopoly power will be established and consumers will be exploited if the price is raised after driving out the competition. It is the violation of laws. It is also against the spirit of the Sherman Act and Clayton act.