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Negative consumer value and loss leading

Author

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  • Caprice, Stéphane
  • Shekhar, Shiva

Abstract

Large retailers, competing with smaller stores that carry a narrower range, can exercise market power by pricing below cost some of their products. Below-cost pricing arises as an exploitative device rather than a predatory device (e.g., Chen and Rey, 2012). Unlike standard textbook models, we show that positive consumer value is not required in these frameworks. Large retailers can sell products offering consumers a negative value. We use our insight to revisit some classic issues in vertical relations.

Suggested Citation

  • Caprice, Stéphane & Shekhar, Shiva, 2017. "Negative consumer value and loss leading," DICE Discussion Papers 271, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:271
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    References listed on IDEAS

    as
    1. Zhijun Chen & Patrick Rey, 2012. "Loss Leading as an Exploitative Practice," American Economic Review, American Economic Association, vol. 102(7), pages 3462-3482, December.
    2. Zhijun Chen & Patrick Rey, 2019. "Competitive cross‐subsidization," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 645-665, September.
    3. Katz, Michael L, 1987. "The Welfare Effects of Third-Degree Price Discrimination in," American Economic Review, American Economic Association, vol. 77(1), pages 154-167, March.
    4. Stéphane Caprice & Patrick Rey, 2015. "Buyer Power from Joint Listing Decision," Economic Journal, Royal Economic Society, vol. 125(589), pages 1677-1704, December.
    5. Vanessa von Schlippenbach, 2015. "Sales at a loss: who benefits?," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 42(2), pages 269-286.
    6. Caprice, Stéphane & Shekhar, Shiva, 2017. "On the countervailing power of large retailers when shopping costs matter," TSE Working Papers 17-771, Toulouse School of Economics (TSE).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    multiproduct retailers; loss-leading; negative consumer value;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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