Predatory Pricing

Predatory pricing describes a proposed strategy of sacrificing returns through low pricing to weaken competition and later recoup losses through market power. Low prices, venture funding, or prices below a competitor's costs do not alone establish predation. Legal requirements depend on jurisdiction and evidence.

Low prices benefit buyers in many ordinary competitive situations. A predatory-pricing allegation requires more than observing a discount or a price below a rival's costs. The economic theory asks whether a firm sacrifices profit to weaken competition and can later recover that sacrifice through less constrained pricing. Entry and customers' alternatives affect whether that sequence is plausible.

Legal tests vary by jurisdiction. The cited FTC guidance describes a U.S. framework involving below-cost pricing and a dangerous probability of recoupment. A founder should not diagnose illegality from an advertisement or treat venture funding as sufficient proof. For a competitor, distinguish documented facts from suspicions and assess sustainable responses without coordinating prices with rivals.

When to use it

When competitors are pricing below cost and the strategic response needs calibration; when evaluating whether 'growth at all costs' strategies constitute predatory pricing; when market entry requires anticipating incumbent pricing response; when the long-term market structure depends on short-term pricing competition.

How it can help

Document actual terms and distinguish plausible efficiency or promotion explanations from exclusion and recoupment. Assess independent, sustainable competitive responses and obtain qualified advice where legal concerns arise.