Predatory pricing

Abstract

Predatory pricing is logically impossible, because it necessarily involves pricing below cost. However, cost, properly understood as opportunity cost is subjective and is incommensurable with money prices; more important, to price below cost implies rationally choosing an alternative (selling at price) that is suboptimal, since cost is the most highly valued alternative not chosen. When critics declare that predatory pricing is to price below cost, they mean to set a price below some measure of money expenses. But this entails all kinds of problems; which concept of expense - marginal is most obvious; but also the issue of the present value of alternatives, which means discounting expected revenues and expected expenses.