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Cut-throat competition

The process whereby the producers of goods systematically reduce their selling prices and maintain them at the lowest level possible for such time as it takes to drive competitors, who are insufficiently funded or less efficient in producing the same goods, out of business. Although this practice is often lauded as being for the public good and in keeping with the ideal of a free market economy, it is very much open to abuse. The immediate effect may be to provide goods at the lowest possible prices for the consumer. However, by driving all com4)etitors out of business, the instigators of the project may in the long term gain monopoly over the supply of goods and reach a position where (within limits set by the cost to prospective competitors of setting up new businesses – limits which may be reinforced by the monopolists controlling the supplies of ingredients needed) they have complete control of prices and can raise them as and when they please. In this latter way cut-throat competition may have the opposite of the anticipated effect and be contrary to the public good. After the first vicious phase of cutting, the average asking price of the goods may level out at a figure far above the true free market price.

Reference: The Penguin Business Dictionary, 3rd edt.