AbstractThis paper analyzes competitive pricing policies by multiproduct firms facing heterogeneous buying patterns. We show that cross-subsidization arises when firms have comparative advantages on different products but are equally efficient overall: Firms earn a profit from multi-stop shoppers by charging positive margins on their strong products but, as price competition for one-stop shoppers drives total margins down to zero, they price weaker products below cost. Banning below-cost pricing leads to higher profits and higher prices for one-stop shoppers, and may reduce consumer surplus as well as total social welfare.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 808.
Date of creation: 14 Dec 2013
Date of revision:
Contact details of provider:
Postal: Manufacture des Tabacs, Aile Jean-Jacques Laffont, 21 Allée de Brienne, 31000 TOULOUSE
Phone: +33 (0)5 61 12 85 89
Fax: + 33 (0)5 61 12 86 37
Web page: http://www.idei.fr/
More information through EDIRC
Bertrand competition; cross-subsidization; buying patterns; one-stop and multi-stop shopping;
Other versions of this item:
- Chen, Zhijun & Rey, Patrick, 2013. "Competitive Cross-Subsidization," TSE Working Papers, Toulouse School of Economics (TSE) 13-450, Toulouse School of Economics (TSE).
- 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-2014-01-10 (All new papers)
- NEP-COM-2014-01-10 (Industrial Competition)
- NEP-IND-2014-01-10 (Industrial Organization)
- NEP-MIC-2014-01-10 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Paul Klemperer & A. Jorge Padilla, 1997. "Do Firms' Product Lines Include Too Many Varieties?," RAND Journal of Economics, The RAND Corporation, vol. 28(3), pages 472-488, Autumn.
- Rey, Patrick & Chen, Zhijun, 2010.
"Loss Leading as an Exploitative Practice,"
TSE Working Papers, Toulouse School of Economics (TSE)
10-218, Toulouse School of Economics (TSE), revised Dec 2011.
- Rey, Patrick & Chen, Zhijun, 2010. "Loss Leading as an Exploitative Practice," IDEI Working Papers, Institut d'Ã‰conomie Industrielle (IDEI), Toulouse 658, Institut d'Ã‰conomie Industrielle (IDEI), Toulouse, revised Dec 2011.
- Zhijun Chen & Patrick Rey, 2010. "Loss Leading as an Exploitative Practice," Working Papers hal-00540724, HAL.
- Rao, P. M. & Klein, Joseph A., 1992. "Antitrust issues concerning R&D cross-subsidization : A case study of US telecommunications," Telecommunications Policy, Elsevier, Elsevier, vol. 16(5), pages 415-424, July.
- DeGraba, Patrick, 2006. "The loss leader is a turkey: Targeted discounts from multi-product competitors," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 24(3), pages 613-628, May.
- Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," The Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.