A Rationale for Repealing the 1987 Groceries Order
A ban on pricing below cost was implemented under the 1987 Groceries Order based on the premise that loss leading used in multi-product retail pricing distorts competition and exploits consumers in the short run, while driving a more concentrated structure and reducing welfare in the long run. Loss leading is examined for multi-product retailers selling in imperfectly competitive market niches with imperfect consumer information. We develop a theoretical argument in a simple two-stage framework that illustrates how loss leading on a subset of products is an equilibrium outcome of price competition that leaves overall welfare equal to that observed under laissez faire.
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Volume (Year): 30 (1999)
Issue (Month): 1 ()
Pages: 71-90
| Handle: | RePEc:eso:journl:v:30:y:1999:i:1:p:71-90 |
| Contact details of provider: | Web page: http://www.esr.ie
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References listed on IDEAS
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- Giulietti, M., 1995. "Multiproduct Firms' Pricing Behavior in the Italian Grocery Trade," Discussion Papers 9509, Exeter University, Department of Economics.
- Holmes, Thomas J, 1989. "The Effects of Third-Degree Price Discrimination in Oligopoly," American Economic Review, American Economic Association, vol. 79(1), pages 244-50, March.
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- Borenstein, Severin & Rose, Nancy L, 1994.
"Competition and Price Dispersion in the U.S. Airline Industry,"
Journal of Political Economy,
University of Chicago Press, vol. 102(4), pages 653-83, August.
- Severin Borenstein & Nancy L. Rose, 1991. "Competition and Price Dispersion in the U.S. Airline Industry," NBER Working Papers 3785, National Bureau of Economic Research, Inc.
- Katz, Michael L, 1984. "Price Discrimination and Monopolistic Competition," Econometrica, Econometric Society, vol. 52(6), pages 1453-71, November.
- Severin Borenstein, 1985. "Price Discrimination in Free-Entry Markets," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 380-397, Autumn.
- Severin Borenstein, 1991. "Selling Costs and Switching Costs: Explaining Retail Gasoline Margins," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 354-369, Autumn.
- Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-91, June.
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