![]() Loss leader pricing is when one or more products are sold below cost, meaning the sticker price is actually lower than the manufacturing and distribution costs. So how can you tell loss leader pricing is right for you? Let’s figure that out. Done wrong, and it could land your business in hot water with customers or even the law. Done right, and it can be a profitable business strategy. This is the world of loss leader pricing. But, overall they remain profitable.Shoppers are always on the hunt for that “too good to be true” price, but what about from the other side? Should brand manufacturers and retailers be just as eager to set a too-good-to-be-true price as shoppers are to find one? This could be termed ‘loss leaders’ For example, supermarkets sell some items like bread and baked beans at a discount to attract customers. Often firms engage in partial predatory pricing. Microsoft’s decision to offer its web browser (Internet Explorer) helped to make it very difficult for its main competitor (Netscape) who was also forced to offer its web browser for free. This was a serious infringement of the law, and the penalty should act as a deterrent to others.’ Microsoft web browser – internet explorer This campaign continued despite the fact that the Competition Act 1998 prohibited predatory pricing from March 2000, and despite an OFT investigation already being in train. ‘Aberdeen Journals deliberately incurred losses in a persistent campaign to remove its only direct rival from the market. Aberdeen Journals were fined £1.3million. Since bus deregulation, bus use in Darlington has fallen from 10 million journeys a year (2001) to 6.6 million (2014).Īberdeen Newspaper was fined by the OFT for predatory pricing and trying to eliminate its main competitor. ![]() We find these actions to be predatory, deplorable and against the public interest.” “It was the combination of Busways’ actions in recruiting so many of DTC’s drivers so quickly, registering services on all its routes and running free services which caused DTC’s final collapse. In a report into the entry of Busways, the Monopolies and Mergers commission reported that the actions of Busways did amount to predatory pricing. ![]() For a time, they also offered free bus rides – attracting customers from their rivals The result was that Darlington Transport Company (DTC) went out of business leading to monopoly power for the remaining Busways company. Busways were also successful in attracting bus drivers from its rival (by paying higher wages. In the Darlington bus wars, Busways (owned by Stagecoach from July 1994) a new entrant into the deregulated bus markets, offered free bus travel to try and force the rival Darlington Bus company out of business. It is prohibited under EU Competition Law to sell goods at a loss with the purpose of forcing other firms out of business. Consumers can benefit if prices fall and all the firms stay in business. However, predatory pricing could be confused with a very competitive market. If predatory pricing leads to an increase in monopoly power, then it will harm the public interest because it leads to higher prices in the long term. Predatory Pricing and the Public Interest
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