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IAI Actuarial Core Principles · Business Economics · Pricing strategies in the financial services sector

A large Indian private bank cuts its home-loan interest rate sharply to win market share, intending to recover the lost margin later by raising rates once rival lenders have left or shrunk. Which pricing strategy is this?

This is predatory pricing: the bank deliberately lowers its price, accepting reduced margins, to push competitors out of the market and then raises rates to recover profits once rivals have shrunk or left.

  1. APredatory pricingCorrect
  2. BPrice skimming
  3. CCost-plus pricing
  4. DPrice discrimination by segment
  5. Limit pricing to deter entry only

Explanation

Predatory pricing means setting prices low, even at a sacrifice of profit, to force rivals out and then raising prices later. Skimming starts high and falls over time, so it is the opposite pattern. Cost-plus ignores rivals, and segment discrimination charges different groups different prices at the same time.

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