Loss Leading as an Exploitative Practice
AbstractWe show that large retailers, competing with smaller stores that carry a narrower range, can exercise market power by pricing below cost some of the products also offered by the smaller rivals, in order to discriminate multi-stop shoppers from onestop shoppers. Loss leading thus appears as an exploitative device rather than as an exclusionary instrument, although it hurts the smaller rivals as well; banning below-cost pricing increases consumer surplus, rivals’ profits, and social welfare. Our insights extend to industries where established firms compete with entrants offering fewer products. They also apply to complementary products such as platforms and applications.
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Bibliographic InfoPaper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 658.
Date of creation: 23 Nov 2010
Date of revision: Dec 2011
Publication status: Published in American Economic Review, vol.�102, n°7, 2012, p.�3462-3482.
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More information through EDIRC
loss leading; exploitative practice; retail power;
Other versions of this item:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-12 (All new papers)
- NEP-COM-2011-02-12 (Industrial Competition)
- NEP-HME-2011-02-12 (Heterodox Microeconomics)
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