Understanding Predatory Pricing Policy
A predatory pricing policy is a strategy where a firm sets prices very low on one or more of its products.
Objective of Predatory Pricing
The primary goal of predatory pricing is not immediate profit maximization. Instead, it is an aggressive tactic specifically designed to harm competitors.
Analyzing the Options
- Drive competitors out of business: This aligns directly with the definition. By setting prices below cost or market levels, a dominant firm can make it unsustainable for smaller competitors to operate, forcing them to exit the market.
- Maximise profits: While the ultimate aim might be future profit maximization after competitors are eliminated, the immediate action of predatory pricing involves sacrificing short-term profits or incurring losses.
- Encourage entrants into the market: Low prices and intense competition deter new firms from entering the market, rather than encouraging them.
- Attain least cost output: This refers to producing at the lowest possible average cost, often achieved at higher output levels. Predatory pricing doesn't directly aim for this operational efficiency; the focus is competitive elimination.
Therefore, the core purpose of a predatory pricing policy is to eliminate competition.
Important Questions from Pricing Strategies
Cost plus pricing is considered appropriate for which combination of the following?
(i) Product Tailoring
(ii) Public Utility Pricing
(iii) Refusal Pricing
(iv) Monopoly Pricing
Choose the correct answer from the code given below:
A firm that produces highly substitute goods can adopt which one of the following pricing strategies ?
In penetration pricing a business firm seeks to access deeper market penetration by keeping prices ____________
Which type of retailers involve in comparatively low prices as a major selling point combined with the reduced costs of doing business?
A reduction from the list price that is offered by a seller to buyers in payment for marketing functions the buyers will perform is known as :
