Is when a firm decides to set a price below the marginal cost curve for a short period of time to induce the exit of a financially inferior rival out of the market. The incumbent firm engaging in this behaviour makes a short-term loss but as long as this can be recouperated with higher supernormal profits immediately after the rival's exit the firm will be willing to engage in this strategy.
Below is a graphic to show the logical chain of reasoning behind the process of a predator pricing strategy by an incumbent firm.
