Predatory Pricing is an unethical pricing strategy—also called undercutting—used by big businesses with enough resources, influence, and overall power to drive competitors out of the market, and to create barriers to entry for potential competitors. In predatory pricing, a large business will cut its prices on certain items way below those of locally competing businesses—usually prices are cut to below cost. Larger companies have the money and resources to be able to take a loss on certain products for a period of time. During this time, many competitors—usually small businesses—will fail because they cannot afford to match the low prices. After the predatory pricing company has successfully eliminated their competition, they will then rise their prices to a point higher than they were previously, in order to take advantage of the lack of competition in the market: a de facto monopoly will have been established.

Free Market Standards

The United States operates as a free market; prices are set by the laws of supply and demand, without government intervention. The free market system relies on competition amongst suppliers, and the demand of the consumers, to fairly set prices. When there is no competition, the system is undermined, as one or very few big players take advantage of their power of price setting. The US government does attempt to regulate monopolistic tendencies with antitrust laws that are meant to promote fair competition and protect consumers, but many companies have found ways to circumvent laws such as the Sherman Act, the Clayton Act, or the Federal Trade Commission Act. When these large companies have the power to set their own prices, it is not wise to think that they will have the best interest of the consumer in mind.

Wal-Mart’s Role

Too many large companies are guilty of predatory pricing because of their price-setting power. One firm worth noting, and stopping, is Wal-Mart Stores, Inc. Walmart has faced allegations for predatory pricing since 1993, and they continue to practice this unethical strategy today. Price cutting a product, such as milk, to a point below cost devalues the product in the minds of the consumers, to the point where they only expect to pay below cost for the good or service. Many locally owned and operated stores will fail to meet the unrealistic demands of the consumer established by Wal-Mart, and will be driven out of the market. One may argue that selling commodities like milk at such low prices will help lower-income buyers to afford the necessities, but in the end Wal-Mart is working against the consumer as they begin to raise their prices once they have eliminated their competition.

Past Cases

• Walmart Stores, Inc. v. American Drugs, Inc. (1995)
• Wisconsin Department of Agriculture, Trade, and Consumer Protection (2000)
• Oklahoma: Crest Foods files suit against Walmart
• Mexico's Federal Competition Commission (2003)
• Germany's High Court forces Walmart to raise prices (2003)

Failure to Act

Many countries consider predatory pricing a violation of competition, and thus deem it illegal under competition laws. However, it is a challenge to prove, in a court of law, that price drops were caused by predatory pricing and not natural competition pricing. In order to prosecute a company for predatory pricing, it would have to be clearly demonstrated that the changes in price were done maliciously, unethically with the purpose of driving out other businesses. As you can see from the cases mentioned above, Walmart has not been prosecuted or penalized for most of its predatory pricing practices.

This is why it is up to YOU, the consumer, to stand up for what is right, and petition Wal-Mart directly in order to prevent their unethical business practices.