Loss Leading as an Exploitative Practice

Rey, Patrick and Chen, Zhijun (2012) Loss Leading as an Exploitative Practice. American Economic Review (AER), 102 (7). pp. 3462-3482.

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Official URL: http://tse-fr.eu/pub/25645

Abstract

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.

Item Type: Article
Language: English
Date: 2012
Refereed: Yes
Uncontrolled Keywords: loss leading, exploitative practice, retail power
JEL codes: L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L41 - Monopolization; Horizontal Anticompetitive Practices
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:23
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:25645
URI: http://publications.ut-capitole.fr/id/eprint/15221

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