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Selling below cost is a practice whereby a firm sells products at less than costs of manufacture or purchase in order to drive out competitors and/or to increase market share. This practice may arise partly because of deep pockets or cross-subsidization using profits derived from sale of other products.

A number of measurement issues arise as to what constitutes costs but generally the practice would arise if price is below marginal cost or average variable cost. A question also arises as to whether selling a product below costs is economically feasible over a long period of time since the firm may incur high costs in the form of loss of potential profits.

Source Publication:
Glossary of Industrial Organisation Economics and Competition Law, compiled by R. S. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.

Cross References:
Loss-leader selling
Predatory pricing


Statistical Theme: Financial statistics

Created on Thursday, January 3, 2002

Last updated on Thursday, March 13, 2003