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Paper Topic:

Predatory Pricing

Predatory pricing occurs when a company sets the prices for its goods well below that of its competitors , essentially driving the competitors out of business , or at least crippling their ability to sell a certain product . Wal-Mart has been known for such behavior and as a result , the owners of local businesses often try to prevent Wal-Mart from opening a store in their communities . Wal-Mart was recently hit with three charges of predatory pricing practices : in Oklahoma Wisconsin and Germany . American Airlines was hit with a similar suit in violation of the

Sherman Trust Act for lowering the prices on a certain route

Wal-Mart was accused of predatory pricing when they began to sell staples such as butter , laundry detergent and milk for prices that were too low to allow competition . Such items have a standard price in the industry , and Wal-Mart 's lowering of the prices was in an attempt to force other retailers out of business , thus creating a monopoly . In addition , lowering these prices gives consumers the impression that Wal-Mart has such low prices on all of their merchandise , and this assertion is not true . The company received several warnings to raise their prices , all of which were ignored

American Airlines was the target of a predatory pricing suit when they lowered prices significantly (as well as raising capacity ) on four flights originating at the busy Dallas /Fort Worth hub . The goal , of course , was to monopolize these routes so that the losses they sustained by lowering their prices would be made up in the sheer volume of passengers on the flights . During litigation , American Airlines was able to prove that it had not priced the tickets below cost , nor had it violated rules in regard to capacity . As a result , the District Court ruled in favor of American Airlines , noting that the government had not succeeded in establishing pricing below an appropriate measure of cost (Dorman , 2006 ) In other words , American Airlines ' prices were reasonable and not predatory

Works Cited

Dorman , G (2006 . Antitrust and Competition Policy Client Experience Retrieved December 7 , 2006 , from NERA Economic Consulting Web site HYPERLINK "http /www .nera .com /PracticeArea .asp ?PA_ID 1 more ClientExp c_ID 311 http /www .nera .com /PracticeArea .asp ?PA_ID 1 more ClientExp c_ID 311 (2000 Nov 1 . Wal Mart charged with predatory pricing . Retrieved December 7 , 2006 , from The Hometown Advantage Web site http /www .newrules .org /retail /news_archive .php ?browseby slug slugid 28...

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