Predatory pricing
Predatory pricing: a dominant firm deliberately pricing below cost to drive rivals out of a market, planning to recoup the loss later — unlawful for dominant firms under EU competition law.
FrameworkEU competition law (Article 102 TFEU)
See it move
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A dominant firm's average variable cost is €18 a unit, but it prices at €15 during a sustained campaign against a new rival, losing €3 on every unit. Selling 4,000 units means absorbing a shortfall of 4,000 times €3, or €12,000 — a loss only a dominant firm can sustain, and exactly the below-cost pricing EU competition law presumes abusive.
Where it fits
SubjectCost AccountingAdvancedTopicPricing & Cost ManagementAdvanced
The formula
LaTeX
Variables
- Cost shortfall absorbed (€)
- Average variable cost per unit (€)
- Selling price per unit (€)
- Units sold during the campaign (units)
Quantifies the loss a firm absorbs by pricing below average variable cost during a below-cost pricing campaign — the core cost-based test for predatory pricing.