Predatory practices in business are not only harmful in the community, they are a terrible business model which repeatedly takes advantage of consumers. Predatory practices in business include predatory lending at outrageous rates, predatory pricing to crush competition and predatory off label marketing by pharmaceutical companies.
Even while the bank set interest rate in Western countries remained negative or near zero after the financial crisis, many individuals and families were subject to predatory loans at outrageous rates of interest of well over 100%. There are many levels of this; for example, while interest rates at a bank remain very low, most credit cards have double digit interest rates, as much as 19%. Payday loans and private lenders charge many times that. In fact, with payday loans which turnover as often as biweekly, the annualized interest is over 7,000% (Skiba & Tobacman 2008). Research has shown the pressure on consumers who engage in these loans is intense, and over fifty percent will default on the loan within the first year having already made interest payments over 90% (Skiba & Tobacman 2008). It can be easy to blame the debtor or borrower, as they have agreed to the conditions of the predatory loan however it is important to note that the exorbitant rates are repackaged and the consumer is often unaware. In addition persons with less income are less likely to get credit elsewhere, and this may be their only means of bridging a final gap when unexpected expenses occur.
Predatory pricing is intended to crush competition, while taking a short term loss in profitability. This type of corporate behavior is one which interferes with the market, and it is anticompetitive, serving no one in the long run and driving out perfectly viable competition. The intention of predatory pricing is the achieve monopoly by ending the profitability in a given market for other firms (Hausman & Taylor 2012). One example of this is phone carriers in the telecommunications industry, who engaged in predatory pricing in order to reduce the market share of small players (Hausman & Taylor 2012). While in the short term consumers benefited from lower prices, in the long term the anticompetitive market which resulted would lead to higher prices than otherwise (Hausman & Taylor 2012).
Off label marketing by pharmaceutical companies is a predatory practice which not only hurts consumers economically, it can harm their health. The practice is one where an existing drug is marketed to doctors and patients for uses other than the ones for which the drug has been proven to be effective (Kesselheim et. al. 2011). This is an illegal practice, however pharmaceutical companies have teams of lawyers and executives who are able to find technical ways to make it work. In some cases they are happy to pay fines in exchange for the large profits that off label marketing brings to companies (Kesselheim et. al. 2011). Consumers cannot be blamed for falling for this; most would not have the scientific and legal knowledge required to fully understand what their drug has been proven effective for, and what steps for taken to verify the drug’s use for a condition before marketing it. The consumers therefore pay the price for the ineffective drug, as well as the potential for it to cause harm by replacing a useful treatment or because it is contradicted by the condition. On the other hand, senior management of the pharmaceutical company who practices this may receive large bonuses for their work in maximizing profits, and shareholders may receive large dividends. The outcomes are clearly unbalanced. While the practice remains illegal, catching companies is challenging in the technical and legal sense, and it requires whistleblowers from inside the company to expose it.
In conclusion, predatory practices are a reality today. Companies have the resources to find technical or illegal ways to continue such practices, despite attempts to stop such predation and ensure fairness for consumers and markets. In the long term these practices hurt everyone, as they result in reduced value of income in the case of predatory loans, performance in the market in the case of predatory pricing and health in the case of off-label marketing.