Prices
In normal conditions, prices are set by Consumers.
In the end, they are the ones who decide what to buy and how much they want to pay for it!
Of course technology, the number of Producers, Salaries, etc. affects the price, but these are more long-term factors.
Predatory Pricing
Businesses can reduce prices to a point where they make a loss on that product, in order to massively increase their profits later!
But how does this work? Why is it 'Predatory'?
Increased Demand
Firstly, by decreasing the price, some people will be convinced to buy what they're trying to sell. Some of these people will actually like what they bought, ending up as recurring customers.
This might actually be good for consumers because they discover new products!
So, here's the really big problem:
Less competition
If the company that lowers their prices can manage the losses for a long time, most consumers will stop buying from the competition and start buying from them.
This means that some businesses that are in direct competition will have to take a loss, either because they sell less or because they lower prices to keep sales the same.
All of this means, in the end, that the business predated on other companies, and managing to bankrupt some of the less financially strong ones.
In the end
After some time, what happens is that, when there are fewer companies competing, prices rise again, probably to levels higher than before, and now you have fewer other alternatives to buy from.
Conclusion
While Predatory Pricing can seem just like normal price competition, it is not. A company is selling a product at a loss in order to eliminate the competition! So, remember to keep an eye out for things that just seem too cheap.
If you know of any more price manipulation practices, and if they're even worse than Predatory Pricing, leave them in the comments!
Thanks for reading!
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Take a look at my last posts, about Inequality!