Loss Leaders: An Indirect Empirical Test

Sang-Yong Tom Lee and Ivan P.L. Png

Industrial Organization from EconWPA

Abstract: We apply an indirect method to test for the extent of loss leader pricing. Specifically, the extent of loss leader pricing should increase with the profit from other regularly-priced items. Bookstores customarily use bestsellers as loss leaders. Among conventional bookstores, we found that the bestseller discount systematically increased with the store area, selection of titles, and presence of other product categories. A one standard deviation increase in store area was associated with a 3.7 (± 1.8) higher bestseller percentage discount. Among online stores, we found that the bestseller discount systematically increased with the selection of titles and number of product categories. A one standard deviation increase in selection was associated with a 9.5 (± 2.2) higher bestseller percentage discount.

Keywords: retail pricing; loss leaders; switching costs (search for similar items in EconPapers)
JEL-codes: D43 D83 L13 M30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ind and nep-mic
Date: 2004-01-25
Note: Type of Document - ; pages: 15
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:0401008

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