Firm A prices its products so low that it drives competitors out of the market. After all of its competitors have been driven out of the market, Firm A raises prices significantly. Which statement best explains how regulation applies to this situation?

Question

Quizplus · Accepted Answer

This situation is an example of predatory pricing, which is considered anticompetitive behavior. By pricing its products below average variable cost, Firm A was able to drive competitors out of the market. Once it had a monopoly on the market, it raised prices significantly, which is also considered anticompetitive behavior. Therefore, the fact that Firm A lowered its prices below average variable cost in an effort to drive competitors out of the market and then subsequently increased prices is sufficient evidence of anticompetitive behavior.

Firm a Prices Its Products So Low That It Drives