Question

A new skateboard company, "Sk8ters" opens its doors across the street from the town’s existing skateboard company "Skate House". Skate House has a big clearance sale that lasts for four month and drastically undercuts its prices. After four months of dismal sales Sk8ters closes its doors unable to sell its products or compete with Skate House’s prices. In the fifth month Skate House raises its prices back to regular prices. This is an example of what type of restrictive practice?

Answer 1

The correct answer is letter "C": predatory pricing.

Step-by-step explanation:

Predatory pricing is the illegal practice of setting prices below competitors to wipe them out of the market. When the prices decline the situation could be favorable for consumers but after the competition is eliminated the predatory-pricing company is likely to raise the prices. Under that scenario, customers are at a disadvantage because they do not have many options from where to choose.

In the U.S., the Federal Trade Commission (FTC) is the body in charge of analyzing predatory pricing practices.