Predatory pricing is the use of price as a competitive weapon to drive weaker competitors out of a national market. Once the competitors have left the market, the firm can raise prices and enjoy high profits. For such a pricing strategy to work, the firm must normally have a profitable position in another national market, which it can use to subsidize aggressive pricing in the market it is trying to monopolize. Historically, many Japanese firms were accused of pursuing such a policy. The argument ran like this: Because the Japanese market was protected from foreign competition by high informal trade barriers, Japanese firms could charge high prices and earn high profits at home. They then used these profits to subsidize aggressive pricing overseas, with the goal of driving competitors out of those markets. Once this had occurred, so it is claimed, the Japanese firms then raised prices. Matsushita was accused of using this strategy to enter the U.S. TV market. As one of the major TV producers in Japan, Matsushita earned high profits at home. It then used these profits to subsidize the losses it made in the United States during its early years there, when it priced low to increase its market penetration. Ultimately, Matsushita became the world’s largest manufacturer of TVs.21
Reducing prices below fair market value as a competitive weapon to drive weaker competitors out of the market (“fair” being cost plus some reasonable profit margin).
Multipoint Pricing Strategy
Multipoint pricing becomes an issue when two or more international businesses compete against each other in two or more national markets. Multipoint pricing was an issue for Kodak and Fuji Photo because the companies long competed against each other around the world in the market for silver halide film.22 Multipoint pricing refers to the fact that a firm’s pricing strategy in one market may have an impact on its rivals’ pricing strategy in another market. Aggressive pricing in one market may elicit a competitive response from a rival in another market. For example, Fuji launched an aggressive competitive attack against Kodak in the U.S. company’s home market in January 1997, cutting prices on multiple-roll packs of 35mm film by as much as 50 percent.23 This price cutting resulted in a 28 percent increase in shipments of Fuji color film during the first six months of 1997, while Kodak’s shipments dropped by 11 percent. This attack created a dilemma for Kodak; the company did not want to start price discounting in its largest and most profitable market. Kodak’s response was to aggressively cut prices in Fuji’s largest market, Japan. This strategic response recognized the interdependence between Kodak and Fuji and the fact that they compete against each other in many different nations. Fuji responded to Kodak’s counterattack by pulling back from its aggressive stance in the United States.