Predatory Pricing: Average Variable Cost Defined as ‘Cost’
Why in the news
Predatory pricing probes now have a fixed yardstick for what a product’s ‘cost’ means.
Key facts
- Under the Competition Act, 2002, selling below cost to remove rivals or weaken competition is predatory pricing.
- Cost = Average Variable Cost = Total Variable Cost / Total Output.
- Total Variable Cost = Total Cost – Fixed Cost – Fixed Overheads.
- Applies to every sector.
Significance
- Shields smaller firms from dominant players and brings clarity for courts and businesses.
- Allows for fluid pricing in digital and gig sectors; helps the CCI spot anti-competitive pricing.
Exam angle
- Cost benchmark: AVC; regulator: CCI.