Final answer:
Walmart, when lowering the price of toothpaste causing competitors to follow, is acting as a price leader. Price leadership is different from predatory pricing, which is aimed at eliminating competition by unsustainable low pricing. Determining predatory pricing involves assessing if a firm sells below its average variable cost, which is often complex in the real world.
Step-by-step explanation:
When Walmart, as the market leader in discount stores, reduces prices, and other discount stores follow suit, Walmart is acting as a price leader. This term describes the company that usually initiates price changes within a market that competitors then feel compelled to follow. This strategy doesn't necessarily imply predatory pricing, which involves setting prices extremely low to drive competitors out of business, often selling at less than the average variable cost. Walmart's strategy of price leadership is different, as it sets the market price without the intent of driving others out, merely influencing the price points in the market.
Predatory pricing, on the other hand, aims to reduce competition by using unsustainable pricing strategies to eliminate competition. This action can create a barrier for new entrants and can sometimes lead to a monopolistic situation. Determining when an action is considered predatory pricing can be complex as it involves assessing whether a firm is selling below its average variable cost, which is challenging to calculate accurately in the real world.