Final answer:
Predatory pricing is linked to dumping when firms sell below cost to eliminate rivals and subsequently raise prices. Identifying such practices as predatory is complex, and anti-dumping cases examine the legitimacy of these actions economically and in policy.
Step-by-step explanation:
The practice of predatory pricing can motivate the strategy of dumping, where a company, often a foreign firm, sells products at prices below production costs to undermine domestic competition. This aggressive pricing tactic is a deliberate move to force local competitors out of the market. Once the domestic rivals are driven off, the dumping firm can raise its prices without the worry of local competition. The difficulty arises in determining when a company's pricing strategy crosses the line into predatory terrain. It is considered predatory if the selling price is below the company's average variable cost, suggesting they are operating at a loss to oust competitors.
Anti-dumping cases challenge the merits of such practices from both an economic and a practical policy perspective. If proven to be a case of predatory pricing, it may warrant legal and regulatory responses to maintain fair market competition. However, drawing the line between healthy competition and predatory pricing often becomes challenging in practice.