Sail Away is competing in the sailboat market with Best Sails. Sail Away drops its price below its cost and, in doing so, drives Best Sails out of the market. Once Sail Away is a monopoly, they raise their price and enjoy economic profit. This is an example of .
A)market division
B)predatory pricing
C)resale price maintenance
D)output restrictions

Question

Quizplus · Accepted Answer

This scenario is an example of predatory pricing, which is a tactic used to drive competitors out of the market by temporarily lowering prices below cost. Once the competition is eliminated, the company can then raise prices to enjoy economic profit as a monopoly.

Sail Away Is Competing in the Sailboat Market with Best