selfundercutting

Selfundercutting is the practice of a seller lowering prices in some markets, channels, or product lines in order to undercut its own higher prices elsewhere. It is distinct from simply competing with rivals; the price reductions are directed at the seller’s own existing offerings, with the aim of shaping demand across segments, geographies, or distribution methods.

Common forms include regional price differentiation, channel-specific discounts offered through online vs. offline sales, and temporary promotions that blur the distinction between higher-priced and lower-priced variants. Firms may use selfundercutting to test price sensitivity, preempt new entrants, liquidate slow-moving inventory, or support cross-channel carryover from a lower-priced model to a higher-priced one in other markets.

Impact and considerations vary. Short-term advantages can include increased volume, better market coverage, and deterrence of competitive entry. Long-term risks include erosion of profit margins, cannibalization of higher-margin products, damage to brand value, and intensified price wars with rivals or within the firm’s own portfolio. Legal and regulatory concerns arise when selfundercutting resembles predatory pricing or is used by a dominant firm to exclude competition, potentially attracting scrutiny under antitrust or competition laws. Proving intent and the likelihood of recouping losses are common factors in such assessments.

Related concepts include predatory pricing, price discrimination, cross-subsidization, and channel conflict. Selfundercutting is most likely to be considered strategic in markets with heterogeneous demand, multiple distribution channels, and significant price elasticity, but it requires careful assessment of profitability, branding, and legal exposure.