Predatory Pricing: Low Prices as a Weapon

When very low prices become illegal, why predatory pricing is hard to prove, and how it plays out in debates about e-commerce and quick commerce.

Low prices are usually good for consumers. But what if a dominant firm cuts prices below cost to drive rivals out, planning to raise prices later? This is predatory pricing.

The strategy

A dominant firm sets prices below its costs.
Rivals cannot match these prices and are forced out.
With competition gone, the firm raises prices and recovers its losses, called recoupment.

Indian law

Under the Competition Act, predatory pricing means selling below cost, as defined by regulations, with a view to reducing competition or eliminating competitors. It is only illegal when done by a dominant firm.

Why it is hard to prove

Low prices are normal: introductory offers and competition often drive prices down.
Measuring cost is complex, especially for businesses with many products.
Recoupment may be unlikely if new rivals can enter easily when prices rise.
Some economists, such as those of the Chicago school, argued predation is rarely rational.

Cases and debates

The telecom price war after Jio’s entry in 2016 led rivals to complain of predatory pricing. The CCI found Jio was not dominant at the time, so predatory pricing rules did not apply.
E-commerce and quick commerce platforms have faced complaints from traders’ associations about deep discounting funded by investors. The CCI has investigated some e-commerce practices.
Retailers argue such pricing hurts small shops, while platforms argue discounts benefit consumers.

Newer thinking

Some scholars argue that in digital markets, where network effects are strong, a firm may accept losses for years to build dominance, making predation more plausible than traditional theory suggested.

The discount war

A well-funded app offers groceries at prices below what small shops pay wholesale. Local shops lose customers. Supporters say customers benefit; critics fear that once shops close, the app will raise prices. Whether this is illegal depends on dominance, costs and intent.

Thinking all low prices are predatory

Most price cuts reflect competition, efficiency or promotion. Predatory pricing requires a dominant firm pricing below cost to eliminate rivals.

Key takeaways

Predatory pricing is pricing below cost to drive out rivals and later raise prices.
In India, it applies only to dominant firms.
It is hard to prove because low prices usually benefit consumers.
Debates over e-commerce and quick commerce discounting continue.