Which of the following concerning predatory pricing is true?
A) Predatory pricing involves charging different prices to different customers based on their willingness-to-pay.
B) Predatory pricing involves raising prices very high so that most consumers are unable to purchase the product, though a few continue to do so, and the firm makes huge profits by having lower production costs.
C) Predatory pricing is used to drive competitors out of the market.
D) Predatory pricing permanently lowers the price in the market.

Question

Quizplus · Accepted Answer

Predatory pricing is a strategy used by a dominant firm to drive competitors out of the market by temporarily setting prices below production costs. The dominant firm can sustain these losses for a period of time, using its larger scale and resources, with the aim of driving competitors out of business. Once competitors have exited, the dominant firm can then raise prices and recoup its losses. The strategy is thus aimed at gaining monopoly power rather than increasing short-term profits (option B is incorrect). Predatory pricing is not based on willingness-to-pay or differential pricing to different customers (option A is incorrect). Finally, predatory pricing does not necessarily result in permanently lower prices, as prices may eventually rise once competitors exit the market (option D is incorrect).

Which of the Following Concerning Predatory Pricing Is True