The software market is a typical new economy where competitors compete with innovative software. At the same time, the high innovation costs act as high barriers for market entry. Thus, the network effects have the function of both tipping the market toward a single dominant network and imposing high switching costs on consumers. As a result, there is a greater danger of Predatory Pricing (PP) in this new economy than in the old industries. Because the software market is a complex market competition environment, PP is a temptation for the dominant supplier to adopt when targeting more efficient suppliers, as a more efficient supplier can easily form its own network by adopting a selective giveaway or market penetration strategy that targets the customers from a dominant network. Once such a competitor gains the minimum mass for a network, it will be difficult for the dominant supplier to maintain its dominant position. To lose a dominant network means the loss of a dominant position, although the supplier may have recovered its costs or gained profits from previous customers. Thus, PP is favoured as a strategy for preventing small competitor networks from competing with the predator in the future.
At the same time, below-cost pricing is common in software sales, as most of these below cost pricing is the result of efficiency or an important step towards efficiency. Therefore, competition law should allow these efficiency-related low prices, as they help to achieve both a low price for consumers and accelerate competition. Additionally, because price competition is a secondary choice in software market competition, competition law would benefit from adopting more lenient policies towards these low prices. In identifying PP in the software market, competition enforcement will have difficulty distinguishing PP from reasonable below-cost pricing. As the marginal cost of software is negligible, a zero price or negative price for market promotion may appear to be risky. However, in fact, such prices are reasonable. For instance, without these prices, it is nearly impossible to establish a network in a market with a competing dominant network. It is also difficult to assess the cost-price relationship of a software product, as this relationship is subject to the demand elasticity and common costs generated in multi-product operating. Thus far, the LAIC is a suitable cost benchmark for assessing the cost-price relationship of a software product because it can both reflect the substantial part of the innovation cost and specify the per unit costs.