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Deliberate price cutting or offer of ‘free gifts/products’ to force rivals (normally smaller and weaker) out of business or prevent new entrants
Anti-competitive and illegal if it can be proved
Typical of oligopoly with collusion
Microsoft – have been accused of predatory pricing strategies in offering ‘free’ software as part of their operating system – Internet Explorer and Windows Media Player - forcing competitors like Netscape and Real Player out of the market
Predatory Pricing The practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market.
Marginal cost – the cost of producing ONE extra or ONE fewer item of production
MC pricing – allows flexibility
Particularly relevant in transport where fixed costs may be relatively high
Allows variable pricing structure – e.g. on a flight from London to New York – providing the cost of the extra passenger is covered, the price could be varied, a good deal to attract customers and fill the aircraft.