Briefly explain the concept of predatory pricing.
Ans. Predatory pricing refers to the situation where a dominant firm reduces its price to below cost level for a period of time during which it will be able to eliminate or contain a competitive force. Following that, and once the predatory firm deems it safe enough; it will raise its price to a level above the competitive price level in order to recoup the losses made during the reduction period. It is the dominant company in such a market which is likely to have both the inclination and the resources to finance such strategy and such pricing can be equally 'unfair' to competitors. Predatory pricing is in practice often difficult to distinguish from normal price competition. The lowering of prices, the directly visible part of predation, is also an essential element of competition. By lowering its price or improving the quality of its product, a company competes on the market. This is competition that benefits consumers and that a competition authority wants to defend and protect. Pricing is hot predatory merely because a company is lowering its price. The concern about predatory pricing is that firms might strategically eut prices to unprofitable levels in the short- term in order to eliminate or discipline rivals and then raise long-run prices to supra-competitive levels, inflicting a net long-term injury on consumers.
The problem is that such harmful predatory pricing is often hard to distinguish from desirable competitive price cutting, so that attempts to condemn the former may mistakenly condemn and deter the latter.
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