Predatory pricing

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Predatory pricing is when a company sells a product at a very low price, lower than its cost, in order to drive away the competition and enable the company to take advantage of greater market power in the future. This is illegal under the antitrust laws.

An example of predatory pricing comes from the Browser Wars between Netscape and Microsoft. Netscape released their original web browser in 1994 and helped popularize the World Wide Web. Microsoft was initially caught off-guard at the popularity of Netscape's browser, which may be based on Bill Gates' initial view of the internet reflected in quotes such as "The Internet? We are not interested in it." To leapfrog the success of Netscape, Microsoft initially gave away their web browser, Internet Explorer, for free as part of a service-pack for Windows-95, and has included it as a bundled part of all of their successively released operating systems. By giving away their browser for free, Microsoft essentially destroyed the market for the web browser Netscape was trying to sell. The illegality of predatory pricing can be difficult to prove.

Libertarian thinking is that, since the free market leads to efficiencies and hence to lower prices and benefits to consumers, predatory pricing is not a major issue.

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