What is a potential consequence of predatory pricing?

What is a potential consequence of predatory pricing?

• A. Increase in market competition
• B. Market saturation
• C. Driving competitors out of business
• D. Higher consumer trust

Answer: (C)

Predatory pricing is a strategy where a company sets its prices extremely low, typically lower than its costs, with the intent to eliminate competition from the market. When a business engages in predatory pricing, it can temporarily lower prices to a point where competitors cannot sustain their operations or match the low pricing. This can lead to competitors being unable to continue in the industry, resulting in them exiting the market. Once the competition is reduced or driven out of business, the company that employed predatory pricing may then raise its prices due to the diminished competitive landscape, potentially leading to greater market power and higher profit margins. Consequently, driving competitors out of business is a direct and significant consequence of predatory pricing and aligns with the business's aggressive strategy to gain market dominance.

Predatory pricing is a strategy where a company sets its prices extremely low, typically lower than its costs, with the intent to eliminate competition from the market. When a business engages in predatory pricing, it can temporarily lower prices to a point where competitors cannot sustain their operations or match the low pricing. This can lead to competitors being unable to continue in the industry, resulting in them exiting the market.

Once the competition is reduced or driven out of business, the company that employed predatory pricing may then raise its prices due to the diminished competitive landscape, potentially leading to greater market power and higher profit margins. Consequently, driving competitors out of business is a direct and significant consequence of predatory pricing and aligns with the business's aggressive strategy to gain market dominance.