Services Predatory Pricing and Regulatory Costing
From a competition perspective, any company must answer the following questions:
The dominant market players or businesses with significant market power must comply with following rules which limits them:
- Forbidden predatory pricing - in long-term, offering products or services for inappropriately low prices.
- Forbidden cross-financing – the dominant competitor uses the profits from the sale of its dominant product / service to support (finance losses) non-dominant product / service, i.e. creating unrealistically low competitive price of such product, threatening players on the market and applying predatory pricing.
- Prohibition of discrimination - applying different conditions to equivalent transactions for different market participants (other competitors or customers), in order to disadvantage them in competition.
A team of specialists in Grant Thornton Advisory has wide experience with preparation of cost models for regulatory purposes, including LRAIC/LRIC methodology. Key purpose of LRAIC/LRIC models is determination of optimal market prices assuming efficient market player with standard profitability. This model is a useful tool for determining the price floor, i.e. the threshold below which price should not fall to ensure sufficient covering of costs as well as reasonable profit margin in the long-term from the perspective of new market entrant (“greenfield”).