Predatory pricing is a strategy where a firm sets prices very low, sometimes below cost, to push competitors out of the market. In Principles of Economics, it is studied as anticompetitive behavior tied to monopoly power and oligopoly.
Predatory pricing is a pricing strategy in Principles of Economics where a firm deliberately sets prices so low that rivals cannot stay profitable. The goal is not just to attract customers for a sale. The goal is to weaken or eliminate competition, then raise prices later once the market is less competitive.
This strategy usually matters when one firm already has a lot of market power, or when a small number of firms dominate the market. A company with deep pockets can afford short-term losses better than a smaller rival can. That makes predatory pricing hard to pull off, but also hard to spot in real life because some low-price campaigns are just normal competition, not a plan to monopolize.
The basic pattern is simple: cut prices aggressively, force rivals to lose money, wait for some of them to leave, and then use the reduced competition to charge more. In theory, that can move a market closer to monopoly. In practice, economists and courts pay close attention to whether the low price is temporary, whether the seller can realistically survive the losses, and whether the firm can later keep prices high without new competitors entering.
This is why predatory pricing is closely tied to barriers to entry. If new firms can enter easily, then any attempt to raise prices later may attract fresh competitors. If entry is hard because of high start-up costs, brand power, control of suppliers, or other barriers, the firm has a better shot at keeping customers after rivals are pushed out.
You will also see this term in oligopoly, where firms watch each other closely and price wars can shape the whole market. A single firm slashing prices can trigger a chain reaction, especially when the rivals are small or financially weak. That is why predatory pricing is often discussed alongside antitrust regulation and consumer welfare: low prices can look good at first, but they may leave buyers worse off if competition disappears.
A good way to tell predatory pricing apart from ordinary competition is to ask what happens after the price cut. If prices stay low because firms are competing hard, consumers benefit. If the low prices are designed to remove rivals and set up higher prices later, that is the predatory pricing story.
Predatory pricing matters because it connects market behavior to monopoly power, barriers to entry, and the limits of competition. In Principles of Economics, this term helps you explain why a low price is not always a sign of healthy competition. Sometimes it is a tactic used to reduce rivalry instead of reward consumers.
It also gives you a way to read market outcomes more carefully. If one company keeps dropping prices in a market with only a few sellers, you should ask whether the firm is trying to capture market share in a normal way or trying to force weaker rivals out. That question shows up in discussions of oligopoly, antitrust policy, and consumer welfare.
The concept is especially useful when you study why some firms stay dominant. Predatory pricing works best when a firm can absorb losses longer than competitors can and when new entry is difficult. That links the term directly to barriers to entry and to why monopolies can form or survive.
It also shows up in public policy debates. Regulators and courts have to decide when aggressive pricing is healthy competition and when it is abuse of market power. That judgment sits at the center of competition policy and anticompetitive behavior cases.
Keep studying Principles of Economics Unit 34
Visual cheatsheet
view galleryOligopoly
Predatory pricing is most likely to come up in oligopoly because a few large firms can watch each other and react fast. If one firm drops prices hard, rivals may have to match it or leave the market. That interdependence makes price wars and strategic behavior much more common than in a perfectly competitive market.
Barriers to Entry
Low prices only lead to long-term market power if new firms cannot easily enter later. High start-up costs, control over suppliers, brand loyalty, and other barriers to entry make it harder for newcomers to challenge the firm after rivals are pushed out. Without barriers, predatory pricing is much less likely to succeed.
Consumer Welfare
Predatory pricing can look good for consumers at first because prices fall. The catch is what happens after competitors exit. If the firm later raises prices, cuts service, or reduces choices, consumers end up worse off. That is why economists do not judge the strategy only by the short-run price tag.
Competition Policy
Competition policy is the broader set of rules and enforcement tools used to stop firms from suppressing rivalry. Predatory pricing is one behavior that regulators may examine under that umbrella. The big question is whether the firm is competing aggressively or trying to create a market where it can control prices.
A quiz question or free-response prompt may give you a market story and ask whether a firm is using predatory pricing or simply competing on price. Look for clues like temporary losses, a dominant firm, rivals exiting, and later price increases. If a graph or case describes prices below cost followed by reduced competition, that is the pattern to explain.
In a written response, you would connect the pricing move to oligopoly, barriers to entry, and consumer welfare. The strongest answers do not stop at “prices are low.” They explain why the low prices may be strategic, how rivals respond, and what happens to market power afterward. If a company can keep prices low long enough to eliminate rivals, the next step is often higher prices and less choice for buyers.
Predatory pricing and dumping both involve selling very cheaply, but they are not the same thing. Predatory pricing is a domestic market strategy aimed at driving out rivals and building market power. Dumping usually refers to selling goods abroad below fair market value, often tied to trade disputes and import policy rather than a single firm's strategy inside one market.
Predatory pricing is when a firm sets prices very low to weaken competitors and gain market power later.
The strategy is tied to monopoly power, because the firm is trying to reduce competition instead of just win customers for the moment.
It works best when the firm can survive short-term losses and when barriers to entry keep new rivals from entering quickly.
Low prices are not automatically predatory, because normal competition can also push prices down.
If rivals exit and prices rise afterward, that is the pattern economists look at when discussing predatory pricing.
Predatory pricing is when a firm cuts prices so low that competitors cannot keep up, often with the goal of forcing them out. After rivals leave, the firm may raise prices and gain more market power. In Principles of Economics, it is studied as an anticompetitive strategy, especially in oligopoly and monopoly discussions.
Normal competition lowers prices because firms are trying to attract customers efficiently. Predatory pricing is different because the low price is meant to damage rivals, not just compete on value. The big clue is what happens next: if prices rise after rivals exit, the low-price period may have been strategic rather than competitive.
It is hard to prove because low prices can be part of ordinary competition, sales, or a company trying to gain market share. Economists and courts usually look for evidence that the firm could absorb losses, that rivals were likely to fail, and that the firm could later keep prices high. Without that evidence, the price cut may just be aggressive competition.
It is most often discussed in oligopoly, where a few large firms dominate the market. In that setting, one firm’s pricing can pressure the others quickly. It is also linked to barriers to entry, because the strategy only pays off if new competitors cannot easily enter after the price war.