Read each question and choose the best answer.

Question

Why is predatory pricing an unprofitable strategy for a company to use over the long term?
A. It encourages more firms to enter the market.
B. It leads to government deregulation of the market.
C. It leads to ever-higher prices for goods.
D. It causes the company to lose money.

Answer 1

The best answer is: A. It encourages more firms to enter the market.

Predatory pricing involves setting prices extremely low in an attempt to drive competitors out of the market. While this may be effective in the short term, it can lead to new firms entering the market once prices are raised again. Additionally, sustaining such low prices can result in substantial losses for the company, making it an unprofitable long-term strategy. Option A addresses the long-term implications of encouraging competition, which can undermine the initial strategy of predatory pricing.