Question

The company has the largest market share in the industry. In order to restrain the smaller competitors in the market, the company sells some of its products at very low prices. This is an example of ________ pricing.

Answer 1

The practice of selling products at very low prices to deter smaller competitors is known as predatory pricing, a strategy used by companies to intimidate potential competition and create barriers to entry.

Step-by-step explanation:

The scenario you're describing is an example of predatory pricing, a business strategy used to intimidate potential competition by selling products at very low prices to deter smaller competitors. This practice involves temporarily cutting prices to discourage or eliminate competition, which can then lead to higher prices once the competition has been reduced or eliminated. Predatory pricing can create substantial barriers to entry for new firms and is often considered an anticompetitive practice that violates U.S. antitrust laws, although it is notoriously difficult to prove in court. A key indicator of predatory pricing is when a company prices its goods below its average variable cost, at which point it should be economically rational to cease operation rather than to continue selling at a loss.