Predatory pricing is a pricing strategy, using the method of undercutting on a larger scale, where a dominant firm in an industry will deliberately reduce the prices of a product or service to loss-making levels in the short-term.
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However, recoupment is not a precondition for establishing whether predatory pricing is an abuse of dominance under Article 102 TFEU.
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The principal part of predatory pricing is the operator in the seller's market, and the operator has certain economic or technical strength.
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The objective performance of predatory pricing is a company temporarily sells goods or services below cost.
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An important condition for predatory pricing is that a dominant firm can raise prices after excluding competitors to compensate for their short-term losses.
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Predatory pricing assumes that long-run marginal costs are a more reliable test of predation than short run costs.
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The primary reasoning was that predatory pricing requires strong barriers to entry to return profits in the long run, which does not exist in the retail grocery industry.
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Predatory pricing is illegal in Australia, the Trade Practices Act made the point of stating that the dominant firm has to have a significant quantity of the market share within the industry the dominant operates.
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The Court requires plaintiffs to show a likelihood that the Predatory pricing practices affect not only rivals, but competition in the market as a whole—to establish there is a substantial probability of success of the attempt to monopolize.
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Some economists claim that true predatory pricing is a rare phenomenon claiming it is an irrational practice and that laws designed to prevent it only inhibit competition.
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For example, dominant undertakings could argue changing market conditions causing reduced demand but increased capacity meant below-cost Predatory pricing was necessary in the short-term to sell off fresh produce.
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Whilst this defence normally cannot be raised because predatory pricing is rarely the most efficient option, predatory pricing can still be a rational strategy.
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