what is predatory pricing 
predatory pricing is the illegal business practice of setting prices for a product unrealistically low in order to eliminate the competition predatory pricing violates antitrust laws as its goal is to create a monopoly however the practice can be difficult to prosecute defendants may argue that lowering prices is a normal business practice in a competitive market rather than a deliberate attempt to undermine the marketplace predatory pricing doesn t always work since the predator is losing revenue as well as the competition the predator must raise prices eventually at that point new competitors will emerge understanding predatory pricingto understand how predatory pricing affects markets and eventually consumers it is necessary to take a longer view consumers enjoy the short term benefits of competitive pricing heightened competition creates a buyer s market in which the consumer enjoys lower prices increased leverage and wider choice however if one company cuts its prices unrealistically low or even below cost other competitors will be forced to abandon the market at that point the advantages for consumers quickly evaporate or even reverse a monopolistic marketplace allows a single producer to raise prices safe in the knowledge that the consumer has no alternatives workers also suffer as the company that retains a monopoly has no competition to drive up wages 1the effects of predatory pricingin order to drive all rivals out of a business the predator must cut prices below their manufacturing costs once the initial competitors have been eliminated the predatory company will raise prices back to normal or above normal this disadvantages consumers at first who have no alternatives to the higher pricing however it also creates an opportunity for new rival companies to emerge or for old competitors to re enter the market at this point they can offer competitive prices that are equal to or lower than the original predatory company s eventually consumers may be given more choices again however if the company s monopoly has grown past a certain point it may no longer be feasible for new companies to emerge creating a permanent monopoly in that market the challenges of predatory pricingfortunately for consumers predatory pricing isn t an easy strategy to pull off eliminating all rivals in a given market comes with considerable risk for instance if a town has many gas stations any one of them could attract more business by cutting prices deeply sustaining those prices long enough to kill off the competition is harder even if a company can use predatory pricing to drive competitors out of business the strategy will succeed only if the revenue lost through predatory pricing can be recouped quickly as soon as the sole gas station raises its prices to normal levels other competitors will spot an opportunity and step in dumping as predatory pricingdumping is a form of predatory pricing practiced by businesses attempting to dominate a foreign market typically businesses that practice dumping sell their products in a foreign market for cheaper than they can at home an increasingly global marketplace has added a new risk to those attempting to dump products some dumped goods are bought abroad and then shipped back to the home country to be sold at higher prices a famous cautionary tale from the early 20th century involved dumping by a german cartel that controlled the european market for bromine then an essential ingredient in many medicines and a vital element in photography after the american company dow chemical started exporting competitively priced bromine to europe the germans retaliated by exporting bromine to the u s for sale at below their manufacturing cost 2dow responded by simply buying the bromine stateside at the dumped price and reselling it profitably in europe which allowed the company to strengthen its european customer base at the expense of the german cartel 2legal risks of predatory pricingprosecution of predatory pricing is difficult given that the prosecutors are trying to prove that low prices can be a bad thing and even an illegal one the federal trade commission ftc says it examines allegations of predatory pricing carefully but that the courts have been skeptical of such claims the u s department of justice doj has asserted that predatory pricing is a real problem and that courts have adopted an overly cautious view of the practice a high bar has been set on antitrust claims in general the u s supreme court has required that plaintiffs show a likelihood that the pricing practices will affect not only rivals but also competition in the market as a whole to establish that there is a substantial probability that the attempt to monopolize will succeed further the court established that predatory pricing must be not just aggressively low but actually below the seller s cost it is not illegal for a business to set prices below its costs for reasons other than having a specific strategy to eliminate competitors example of predatory pricingone of the most active areas of enforcement against predatory pricing is the u s government s effort to crack down on exporters who sell their products too cheaply in the u s the international trade commission of the commerce department defines too cheaply as less than fair market value any u s company can file a petition against any foreign company that it believes is selling its goods at less than fair market value current complaints under review include a wide range of products from many countries from frozen shrimp and steel nails shipped from india to lemon juice from south korea if the international trade commission finds that an importer has sold its products for less than fair market value it has the power to impose a duty at a rate that is calculated to eliminate any benefit derived from dumping goods 