Predatory Pricing Is a Practice of Deliberately Pricing at a Loss

question 18

Essay

Predatory pricing is a practice of deliberately pricing at a loss in order to bankrupt a rival.
(a) Is predatory pricing rational?
(b) Should predatory pricing be illegal? Explain why or why not

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Definitions:

Product-Variety Externality

An economic effect where an individual's consumption choices can lead to an increase in the variety of products available, potentially benefiting other consumers.

Negative Externality

A cost that affects a party who did not choose to incur that cost, often associated with production or consumption activities.

Monopolistically Competitive

A market structure characterized by many firms selling products that are similar but not identical, allowing for some degree of market power and differentiated competition.