Can Low Prices Ever Be a Bad Thing?

Price wars among competitors are often a positive sign of healthy competition. As businesses undercut each other on price, consumers benefit from more affordable goods and services.

Although it rarely happens, excessively low prices may harm competition when a dominant business deploys a below-cost pricing strategy to damage a competitor, drive an existing competitor out of the market, and deter potential competitors from entering. Smaller competitors may not have deep enough pockets to compete with a powerful business, and, when equally efficient, smaller competitors are driven out of the market, the predating business can strengthen its market power to raise prices and exploit consumers. Ultimately, consumers may be left with fewer choices, higher prices or reduced quality of goods and services.

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