Predatory pricing strategy is the technique of setting low prices for eliminating the competition. In several countries and Government jurisdiction, this strategy is considered to be illegal as it makes the market very vulnerable to the monopolistic situations. The firms can engage themselves in various activities for driving away their competitors by creating the entry barriers with unethical production methods.
Theories for Assessing Predatory Pricing
There can be various theories required for assessing the predatory pricing. Let us discuss some of the theories:
- No Rule: According to the No rule policy, the predatory pricing strategy is applied so rarely, that no rule is required in the competition. There remains an argument whether the predation will be successful or not. Sometimes, the intervention of Government is not required in this rule.
- Short-Run Cost-Based Rule: In this rule, the firms can be restrained as little as possible and the competitors can turn against the competitive pricing of the firm.