Loss-leader pricing and upgrades
A new theory of loss-leader pricing is provided in which firms advertise low (below cost) prices for certain goods to signal that their other unadvertised (substitute) goods are not priced too high. The theory is applied to the pricing of upgrades. The results contrast with most existing loss-leader theories in that firms make a loss on some consumers (who buy the basic version of the good) and a profit on others (who buy the upgrade).
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References listed on IDEAS
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- Zhijun Chen & Patrick Rey, 2010.
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- Rey, Patrick & Chen, Zhijun, 2010. "Loss Leading as an Exploitative Practice," TSE Working Papers 10-218, Toulouse School of Economics (TSE), revised Dec 2011.
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- Rosato, Antonio, 2013.
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- DeGraba, Patrick, 2006. "The loss leader is a turkey: Targeted discounts from multi-product competitors," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 613-628, May.
- Duncan Simester, 1995. "Signalling Price Image Using Advertised Prices," Marketing Science, INFORMS, vol. 14(2), pages 166-188.
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