Which pricing tactic is used to temporarily set prices low to drive competitors out of business?

Which pricing tactic is used to temporarily set prices low to drive competitors out of business?

• A. Dynamic pricing
• B. Loss leader pricing
• C. Price wars
• D. Predatory pricing

Answer: (D)

Predatory pricing is a strategy where a firm temporarily cuts prices well below cost to push competitors out of the market. The idea is to use low prices to squeeze rivals until they can’t compete, and once competitors exit, the firm can raise prices again and regain profits. This approach relies on sustaining losses long enough to deter or eliminate competition, which is why it’s viewed as anti-competitive and is often illegal in many places. Loss leader pricing, by contrast, uses low prices on select items to attract customers and drive overall sales rather than to force competitors out. Dynamic pricing changes prices based on demand and other factors, not with the aim of eliminating rivals. A price war involves ongoing price-cutting among competitors to gain market share, rather than a deliberate plan to remove competition so profits can be restored later.

Predatory pricing is a strategy where a firm temporarily cuts prices well below cost to push competitors out of the market. The idea is to use low prices to squeeze rivals until they can’t compete, and once competitors exit, the firm can raise prices again and regain profits. This approach relies on sustaining losses long enough to deter or eliminate competition, which is why it’s viewed as anti-competitive and is often illegal in many places.

Loss leader pricing, by contrast, uses low prices on select items to attract customers and drive overall sales rather than to force competitors out. Dynamic pricing changes prices based on demand and other factors, not with the aim of eliminating rivals. A price war involves ongoing price-cutting among competitors to gain market share, rather than a deliberate plan to remove competition so profits can be restored later.