IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Loss Leading as an Exploitative Practice

  • Rey, Patrick
  • Chen, Zhijun

We show that large retailers, competing with smaller stores that carry a narrower range, can exercise market power by pricing below cost some of the products also offered by the smaller rivals, in order to discriminate multi-stop shoppers from onestop shoppers. Loss leading thus appears as an exploitative device rather than as an exclusionary instrument, although it hurts the smaller rivals as well; banning below-cost pricing increases consumer surplus, rivals’ profits, and social welfare. Our insights extend to industries where established firms compete with entrants offering fewer products. They also apply to complementary products such as platforms and applications.

If 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.

File URL:
File Function: Full text
Download Restriction: no

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 658.

in new window

Date of creation: 23 Nov 2010
Date of revision: Dec 2011
Publication status: Published in American Economic Review, vol.�102, n°7, 2012, p.�3462-3482.
Handle: RePEc:ide:wpaper:24028
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:

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Dennis W. Carlton & Michael Waldman, 1998. "The Strategic Use Of Tying To Preserve And Create Market Power In Evolving Industries," University of Chicago - George G. Stigler Center for Study of Economy and State 145, Chicago - Center for Study of Economy and State.
  2. Patrick REY & Thibaud VERGE, 2009. "Resale Price Maintenance and Interlocking Relationships," Working Papers 2009-11, Centre de Recherche en Economie et Statistique.
  3. T. Randolph Beard & Michael L. Stern, 2008. "CONTINUOUS CROSS SUBSIDIES AND QUANTITY RESTRICTIONS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(4), pages 840-861, December.
  4. John Vickers & Mark Armstrong, 2006. "Competitive Nonlinear Pricing and Bundling," Economics Series Working Papers 281, University of Oxford, Department of Economics.
  5. Inderst, Roman & Wey, Christian, 2002. "Buyer Power and Supplier Incentives," CEPR Discussion Papers 3547, C.E.P.R. Discussion Papers.
  6. Claire Chambolle, 2000. "Stratégies de revente à perte et réglementation," Working Papers 2000-52, Centre de Recherche en Economie et Statistique.
  7. Marie-Laure Allain & Claire Chambolle, 2004. "Loss-leaders Banning Laws as Vertical Restraints," Working Papers 2004-19, Centre de Recherche en Economie et Statistique.
  8. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
  9. Gijsbrechts, E. & Campo, K. & Nisol, P., 2005. "Beyond Promotion-Based Store Switching : Antecedents and Consequences of Systematic Multiple-Store Shopping," Discussion Paper 2005-76, Tilburg University, Center for Economic Research.
  10. Joseph Farrell and Michael L. Katz., 2000. "Innovation, Rent Extraction, and Integration in Systems Markets," Economics Working Papers E00-286, University of California at Berkeley.
  11. Glenn Ellison, 2004. "A Model of Add-on Pricing," Economics Working Papers 0049, Institute for Advanced Study, School of Social Science.
  12. Bliss, Christopher, 1988. "A Theory of Retail Pricing," Journal of Industrial Economics, Wiley Blackwell, vol. 36(4), pages 375-91, June.
  13. Roman Inderst & Tommaso M. Valletti, 2008. "Buyer Power and the “Waterbed Effect”," CEIS Research Paper 107, Tor Vergata University, CEIS, revised 10 Jul 2008.
  14. Skidmore, Mark & Peltier, James & Alm, James, 2005. "Do state motor fuel sales-below-cost laws lower prices?," Journal of Urban Economics, Elsevier, vol. 57(1), pages 189-211, January.
  15. Weinstein, Jonathan & Ambrus, Attila, 2008. "Price Dispersion and Loss Leaders," Scholarly Articles 4589708, Harvard University Department of Economics.
  16. Paul Dobson & Michael Waterson, 1999. "Retailer power: recent developments and policy implications," Economic Policy, CEPR;CES;MSH, vol. 14(28), pages 133-164, 04.
  17. Weinstein, Jonathan & Ambrus, Attila, 2008. "Price dispersion and loss leaders," Theoretical Economics, Econometric Society, vol. 3(4), December.
  18. repec:hrv:faseco:4685158 is not listed on IDEAS
  19. Cleeren, Kathleen & Dekimpe, Marnik G. & Gielens, Katrijn & Verboven, Frank, 2008. "Intra- and Inter-Format Competition Among Discounters and Supermarkets," CEPR Discussion Papers 6964, C.E.P.R. Discussion Papers.
  20. Claire CHAMBOLLE, 2005. "Stratégies de revente à perte et réglementation," Annals of Economics and Statistics, GENES, issue 77, pages 59-79.
  21. Walsh, Patrick Paul & Whelan, Ciara, 1999. "Loss leading and price intervention in multiproduct retailing: welfare outcomes in a second-best world1," International Review of Law and Economics, Elsevier, vol. 19(3), pages 333-347, September.
  22. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
  23. 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.
  24. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ide:wpaper:24028. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.