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Negative market value and loss leading

Author

Listed:
  • Stephane Caprice

    (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique)

  • Shiva Shekhar

    (Heinrich Heine Universität Düsseldorf = Heinrich Heine University [Düsseldorf])

Abstract

Multi-product retailers competing with smaller retailers can exercise market power by pricing below cost products also offered by smaller rivals. Loss-leading is not a predatory strategy: rather pro-competitive justifications are invoked. Unlike standard textbook models, we show that positive market value, that is, consumer valuation larger than production cost, is not required in this line of research examining the phenomenon of loss-leading. Multi-product retailers can supply products offering negative market value. We use this insight to revisit some classic issues in vertical relations.

Suggested Citation

  • Stephane Caprice & Shiva Shekhar, 2019. "Negative market value and loss leading," Post-Print hal-02178451, HAL.
    • Handle: RePEc:hal:journl:hal-02178451
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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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