The practice of selling below cost, with an intention to destroy the competitor is referred to as :

Question

Accepted Answer

The correct option is 2:
Predatory pricing is a strategic and often illegal business practice where a dominant firm intentionally sets its product prices at a very low level, frequently below its own production cost, with the explicit goal of driving competitors out of the market. This short-term pricing sacrifice is an anti-competitive maneuver designed to discourage new entrants and eliminate existing rivals who cannot sustain the prolonged losses. Once competition is successfully destroyed and the market is monopolized, the dominant firm raises prices to supra-competitive levels to recoup the initial losses, ultimately harming consumer welfare through higher prices and reduced choice.

The incorrect option is 1:
Loss-leader pricing is a common promotional strategy where a business sells a product at or below cost, but its intention is fundamentally different from predatory pricing. The goal is not to destroy competitors but to attract customers into the store or website. The hope is that once attracted, customers will purchase other, higher-margin items, thus making the overall transaction profitable. This practice is typically legal and is focused on driving customer traffic, not eliminating rival firms from the industry.

The incorrect option is 3:
Price discrimination involves a company charging different prices to different customers or customer segments for the same product or service. This is done to maximize profits by capitalizing on differences in customer willingness to pay or price elasticity of demand. While it is a differential pricing strategy, it does not necessarily involve pricing below cost. Its primary mechanism is segmentation, and its purpose is revenue maximization from existing markets, not the specific destruction of competitors.

The incorrect option is 4:
Penetration pricing is a strategy where a company introduces a new product at a very low initial price to quickly capture a large market share. The main objective is rapid adoption and scale, which can create a barrier to entry for potential rivals. Although the price is low, it is usually set above cost, and the strategy is focused on achieving market share growth. Its intention is market entry and long-term growth, not the malicious or illegal intent of competitor elimination that defines predatory pricing.