Loss-leader pricing and upgrades

Younghwan In and Julian Wright

Economics Letters, 2014, vol. 122, issue 1, 19-22

Abstract: A new theory of loss-leader pricing is provided in which firms advertise low (below cost) prices for certain goods to signal that their other unadvertised (substitute) goods are not priced too high. The theory is applied to the pricing of upgrades. The results contrast with most existing loss-leader theories in that firms make a loss on some consumers (who buy the basic version of the good) and a profit on others (who buy the upgrade).

Keywords: Signaling; Loss leader; Advertising; Upgrades (search for similar items in EconPapers)
JEL-codes: D43 D82 L11 L13 M37 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:122:y:2014:i:1:p:19-22

DOI: 10.1016/j.econlet.2013.10.014

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