A firm's action to set a price below its shutdown point with the intent to drive a competitor out of business is called
A)hostile takeover.
B)lowering the firm's price-cost margin.
C)predatory pricing.
D)price discrimination.
E)a contestable market action.

Question

Quizplus · Accepted Answer

Predatory pricing is the act of setting a price below the firm's average total cost or below the competitor's cost with the intention of driving the competitor out of business. It is deemed an antitrust violation since it eliminates competition and allows the surviving company to operate as a monopoly, resulting in prohibitive pricing.

A Firm's Action to Set a Price Below Its Shutdown