Predatory Pricing and Competitive Pricing Compared

Low prices are what competition is for, and the law must not penalise the firm that charges them. Predatory pricing is the exception: selling below cost in order to remove rivals, with the expectation of raising prices once they are gone. The distinction is difficult because the two look identical to the customer and to the competitor who loses business, and because condemning aggressive pricing too readily protects inefficient rivals at the expense of buyers. Indian law addresses it through three requirements in Section 4(2)(a)(ii) and through the cost benchmarks in the regulations of 2025.

1. The Statutory Test

The Explanation to Section 4 defines predatory price as the sale of goods or provision of services at a price below the cost, as may be determined by regulations, of production of the goods or provision of the services, with a view to reduce competition or eliminate the competitors. Three elements must therefore be established.

Dominance. Section 4 applies only to a dominant enterprise. A new entrant pricing aggressively to establish itself is outside the section altogether, however low its prices, because it has no position to abuse. Several Indian informations alleging predation have failed at this stage.
Pricing below cost, the cost being determined under the Competition Commission of India (Determination of Cost of Production) Regulations, 2025, which make average variable cost the default benchmark and permit average total cost, average avoidable cost or long run average incremental cost according to the industry.
The purpose of reducing competition or eliminating competitors, which is inferred from the selectivity and duration of the pricing, the targeting of a particular rival or territory, the feasibility of recouping the loss, and any internal material.

2. The Comparison

Basis	Competitive pricing	Predatory pricing
Relation to cost	Above the applicable benchmark, even if margins are thin	Below the benchmark, so that each sale loses money
Who is offered the price	Generally available to customers	Often selective, aimed at the customers or areas a rival is trying to win
Duration	Limited: a promotion, a clearance, an introductory offer	Sustained beyond any promotional purpose, and typically until the rival withdraws
Explanation	Scale economies, learning, lower costs, excess stock, market entry	None consistent with profit-seeking on the sales themselves
Prospect of recoupment	Irrelevant; the firm is making money now	Feasible, because entry barriers would permit prices to rise once rivals leave
Effect on buyers	Lasting benefit	Short-term benefit followed by higher prices

3. Why the Line Is Drawn at Cost

A price above the cost that varies with output is profitable on each unit sold, and a rival that cannot match it is simply less efficient; protecting such a rival would be protecting a competitor rather than competition. A price below that cost loses money on every unit, and the firm accepts the loss for a reason other than profit on the sale, the obvious reason being the removal of a competitor. That is why average variable cost is the default benchmark and why pricing below it is the strongest indication of predation. Where the industry has large fixed and sunk costs, variable cost is so low that almost any price clears it, and long run average incremental cost is the more meaningful measure, which is why the regulations permit the Commission to select the benchmark according to the industry and the technology.

⚠ Recoupment in Indian law

In American practice the plaintiff must show a dangerous probability that the predator will recoup its losses, on the reasoning that without recoupment the episode is a gift to consumers rather than a harm. The Indian Explanation requires only that the pricing be with a view to reducing competition or eliminating competitors, so recoupment is not a separate statutory ingredient. It remains highly relevant as evidence: a firm in a market with easy entry cannot sensibly expect to raise prices after driving a rival out, so the absence of barriers is strong evidence that the pricing had some other explanation.

4. The Digital Variant

Allegations of predation are made constantly against platforms offering services free or below cost, funded by investors rather than by revenue. Three cautions apply. Dominance must be established first, and a platform spending to acquire users in a contested market is usually not dominant. The cost benchmark must fit the business: variable cost in a digital service is close to zero, so average variable cost proves nothing and long run average incremental cost is the appropriate measure. And a zero price on one side of a multi-sided platform may be funded by the other side, which is the ordinary economics of such markets rather than predation. The regulations of 2025 accommodate this by making the framework sector-agnostic and applied case by case.

5. Related Topics and Provisions

Topic or provision	Connection
Abuse of Dominant Position: Section 4	Predatory pricing among the listed abuses
The Determination of Cost of Production Regulations, 2025	The cost benchmarks
Competition Law in Digital Markets	Zero-price services and platform funding
Section 4(2)(a)(ii) and the Explanation, Competition Act, 2002	The statutory definition