Predatory pricing is the practice whereby a foreign producer intentionally sells its products in a market for less than the cost of production to

A) meet the deficiencies in the reserves account of the foreign country.

B) create a positive balance of payments for the foreign producer's country.

C) abide by the voluntary export restriction agreement.

D) overcome antidumping laws.

E) undermine the competition and take control of the market.

Question

Business

Peyton Proctor

28 January, 20:39

Predatory pricing is the practice whereby a foreign producer intentionally sells its products in a market for less than the cost of production to

A) meet the deficiencies in the reserves account of the foreign country.

B) create a positive balance of payments for the foreign producer's country.

C) abide by the voluntary export restriction agreement.

D) overcome antidumping laws.

E) undermine the competition and take control of the market.

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Answers (1)

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Ariana Harding · Answer 1

The answer is E) undermine the competition and take control of the market.

Explanation:

By definition predatory pricing can be done by a foreign or a local company that sells its products or services at a very low price in order to achieve new customers. By doing so they undermine their competitors and drive them out of the market.

No company can survive in the long run if it sells its products or services for less than its costs. They would be simply losing money. So the existing competitors will be forced to either lose customers and market share or lose money with their sales. Also predatory pricing practices tend to create entry barriers for new competitors.

When foreign companies get involved in this type of practices they can be accused of dumping and be sanctioned with anti-dumping duties or tariffs. When local companies do this they can be accused of monopolistic practices and also be penalized. The problem for the other companies is that this process usually takes a long time and by the time the sanctions or new tariffs are imposed, they may be already out of business.

The whole idea with predatory pricing is that after the company gets rid of its competitors then they can sell their products or services at a supra competitive price. That is a price much higher than the normal price at a competitive level. So whenever this type of practice is done, the customers will eventually end up paying more for the products and services in the long run.