Question

A huge bookstore, World Books, opens in a downtown area. It offers a 50 percent discount on all hardcover books and a 40 percent discount on all paperback books. The other two bookstores in the area cannot possibly compete with such low prices, and they go out of business. It is possible that World Books is engaged in _______.

a. predatory pricing
b. deceptive pricing
c. price discrimination
d. price fixing

Answer 1

World Books is engaged in predatory pricing by offering significantly lower prices than its competitors in order to force them out of business.

Step-by-step explanation:

Predatory pricing occurs when an existing firm drops prices very low to drive out new competitors from the market and then raises prices again when the competition is eliminated.

In this scenario, World Books is offering a 50 percent discount on hardcover books and a 40 percent discount on paperback books, which is significantly lower than the prices offered by the other two bookstores in the area. This low pricing strategy is aimed at deterring competition and forcing the other bookstores out of business, suggesting that World Books is engaged in predatory pricing.