Aggressive and predatory pricing: A framework for analysis

Abstract

The authors examine competitive interaction in the context of aggressive pricing strategies. Although aggressive pricing by one firm may initially provide lower prices to consumers, the behavior also can be predatory and ultimately result in undesirable welfare consequences. To date, public policy analysis of such behavior has relied on traditional economic theory, with State and Federal policies creating conflicting guidelines for managers. The authors offer a framework for understanding aggressive and predatory pricing that incorporates research from marketing and related disciplines as well as traditional and newer streams of economic analysis. Distinguishing features of the framework include a broader delineation of indicators that potentially predatory behavior might have occurred, an expanded view of the possible motivations for aggressive and predatory pricing behavior that are not admitted into current analyses, and a more comprehensive analysis of competitors' strategic responses to such pricing and the varying consequences of these responses. They further argue that the field of marketing is uniquely positioned to provide the kind of comprehensive measurement and modeling contributions needed to create policy guidelines that can be implemented in this area.