In brief
Predatory pricing, often referred to as âpredatory pricingâ, is an exclusionary pricing practice whereby a company with a dominant position sets prices below the relevant costs in order to marginalise competitors or reduce competition. In the EU, this falls within the scope of the prohibition on the abuse of a dominant position. The concept is therefore more specific than simply a company selling at low prices or investing heavily.
Why are low prices not proof in themselves?
Low prices may also result from more efficient production, economies of scale or simply competition. This can actually help users. When making an assessment, you should consider, amongst other things, the relevant market, dominant position, price-cost ratio and the circumstances surrounding the behaviour. You cannot draw that conclusion from a single API rate alone.
The idea behind the term
The economic rationale is that a company temporarily forgoes revenue to weaken the competition, thereby leaving customers with fewer alternatives later on. Higher future prices may be a factor in this. A specific legal assessment requires more than this explanation; which facts and tests are decisive also depends on the applicable legal rules and circumstances.
A fictional example
Two AI services charge different token prices. That merely indicates a price difference. Perhaps they use different models, hardware or terms of service. Without data on costs and market position, you cannot say that the cheapest service is engaging in predatory pricing. This example helps to distinguish between an observable rate and an unproven conclusion about the strategy behind it.
Why is this relevant for organisations?
You donât need to assess a competition case to understand your dependencies. An application that is heavily reliant on a single service may be vulnerable to changes in terms and conditions or availability, regardless of the justification for the price. You should therefore consider model replacement, export options and alternative routes. These are practical choices that you can explore yourself.
What can you compare?
Calculate the costs per successful outcome, including all necessary steps. Set out the requirements that an alternative must meet and test a small-scale transition. Keep factual pricing information separate from assumptions about business operations. This will enable you to procure sensibly and design a workflow without resorting to unfounded accusations against suppliers.
From concept to practice
How AITJE applies this
In our advice and analysis, we distinguish between actual rates and assumptions about market strategies. We assess which costs and dependencies are relevant to your organisation and which alternative set-up is feasible. AITJE does not, therefore, provide any competition law assessment of providers. However, we can design an AI workflow in such a way that a change in price or availability does not automatically lock in all choices.
View advice and analysisFrom explanation to application
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