What term describes the practice of setting prices to attract customers by reducing prices below cost?

The term that describes the practice of setting prices to attract customers by reducing prices below cost is known as a loss leader. This strategy is commonly employed by businesses to draw customers into their store or service and encourage them to make additional purchases. By offering certain products or services at a price that is lower than their actual cost, businesses aim to increase foot traffic or sales volume, which can lead to greater overall profit from other items that are sold at normal prices.

This approach leverages the concept of attracting customers with compelling deals, which can significantly impact purchasing behavior. For instance, when a grocery store sells a popular item, like milk, at a price lower than what it pays, customers are likely to buy that item and potentially add other higher-margin products to their carts.

The other options do not accurately reflect this pricing strategy. Liabilities refer to financial obligations a company owes, equity pertains to ownership interest in a company, and competition describes the rivalry among businesses in a market. None of these concepts specifically address the tactic of pricing below cost to lure customers.