Predatory and Discriminatory Pricing

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When managers have the task of pricing products and/or services, many factors are taken into account. One of these factors include legal requirements that companies have to follow set by the United States and international laws. These laws are set to protect consumers from predatory pricing and discriminatory pricing (Horngren 2011). Predatory pricing is a situation where a company prices its products below its cost of production in order to eliminate competition to the point where the competition has to leave the market due to major losses. Once the competition has been eliminated then the company increases its prices and customers are often forced to buy products at such high prices because competition has been knocked off the scene (Horngren 2011) (Garg, 2011). In this instance companies may be challenged to prove their intent when this occurs. In the article, “Is predatory pricing rational?” in The Economic Times, the author explained that it may be difficult to prove if a company is using predatory pricing to get rid of competition. The author explained using three reasons. First, it must be determined if a company is pricing their products at below variable cost. Companies that do not reach their average variable costs, they make a decision to leave the market. Secondly, if costs have been reduced, then companies can reduce their prices as well. Lastly, the rationale behind predatory pricing doesn’t make much sense. When a company drives the prices so low and gets rid of competition and then raises prices, other companies will come along with lower prices to beat out the higher prices (Garg, 2011). Discriminatory pricing is charging different prices for the same product to different customers (Horngren, 2011). One would wonder why companies would practice such an offense. If we think about our everyday lives there are many instances where

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