Competitive Cross-Subsidization

Chen, Zhijun and Rey, Patrick (2018) Competitive Cross-Subsidization. TSE Working Paper, n. 13-450, Toulouse

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Cross-subsidization arises naturally when firms with different comparative ad- vantages compete for consumers with diverse shopping patterns. Firms then face a form of co-opetition, being substitutes for one-stop shoppers and complements for multi-stop shoppers. Competition for one-stop shoppers then drives total prices down to cost, but firms subsidize weak products with the profit made on strong products. While firms and consumers would benefit from cooperation limiting cross- subsidization (e.g., through price caps), banning below-cost pricing instead increases firms’ profits at the expense of one-stop shoppers; this calls for a cautious use of below-cost pricing regulations in competitive markets.

Item Type: Monograph (Working Paper)
Language: English
Date: 1 November 2018
Place of Publication: Toulouse
Uncontrolled Keywords: cross-subsidization, shopping patterns, multiproduct competition, co-opetition
JEL Classification: L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L41 - Monopolization; Horizontal Anticompetitive Practices
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 09 Jul 2014 17:40
Last Modified: 23 Apr 2019 09:39
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