Chen, Zhijun and Rey, Patrick (2019) Competitive cross-subsidization. RAND Journal of Economics, vol. 50 (n° 3). pp. 645-665.

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Identification Number : 10.1111/1756-2171.12293

Abstract

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: Article
Language: English
Date: 2019
Refereed: Yes
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
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 21 Jan 2019 14:40
Last Modified: 10 Sep 2021 11:32
OAI Identifier: oai:tse-fr.eu:33262
URI: https://publications.ut-capitole.fr/id/eprint/30828

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