Final answer:
The pricing strategy of setting a low price to attract buyers and gain market share is called market-penetration pricing, distinct from predatory pricing which aims to eliminate competition through unsustainable low prices.
Step-by-step explanation:
The pricing approach where a company sets a low initial price to attract a large number of buyers quickly and gain a substantial market share is known as market-penetration pricing. This strategy is distinct from practices like predatory pricing, where an existing firm intentionally lowers prices below average variable costs to drive out new entrants and then raises prices again once the competition is eliminated.
Predatory pricing is a form of anti-competitive behavior and is subject to legal scrutiny under U.S. antitrust laws. However, determining when a firm is engaging in predatory pricing can be challenging, as it requires clear evidence of selling below average variable costs and the intent to eliminate competition.Furthermore, differentiating between aggressive pricing tactics and legitimate competition is often not straightforward. For instance, if an established airline such as American Airlines reduces its prices in response to a new competitor, it might be perceived as either predatory pricing or healthy market competition.