Question

Penny Bank, a discount store, is highly competitive. When entering a new market, Penny Bank often cuts prices so deeply that it sells below costs, effectively pushing smaller retail stores with less purchasing power out of the market. In this case, Penny Bank is using___________.

Answer 1

Answer: The correct answer is "Predatory pricing".

Explanation: In this case, Penny Bank is using predatory pricing.

Predatory prices consist of a pricing strategy that seeks to reduce prices below cost and have the effect of removing all competitors from the market, which although they are equally efficient as the firm that carries out the strategy, cannot withstand the competition of such low prices. The predominant firm on the other hand, aims to keep the entire market and then increase prices and obtain monopoly profits.