Price Dispersion and Loss Leaders

Jonathan Weinstein () and Attila Ambrus

Scholarly Articles from Harvard University Department of Economics

Abstract: Dispersion in retail prices of identical goods is inconsistent with the standard model of price competition among identical firms, which predicts that all prices will be driven down to cost. One common explanation for such dispersion is the use of a loss-leader strategy, in which a firm prices one good below cost in order to attract a higher customer volume for profitable goods. By assuming each consumer is forced to buy all desired goods at a single firm, we create the possibility of an effective loss-leader strategy. We find that such a strategy cannot occur in equilibrium if individual demands are inelastic, or if demands are diversely distributed. We further show that equilibrium loss leaders can occur (and can result in positive profits) if there are demand complementarities, but only with delicate relationships among the preferences of all consumers.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Published in Theoretical Economics

Downloads: (external link)
http://dash.harvard.edu/bitstream/handle/1/4589708/ambrus_price.PDF (application/pdf)

Related works:
Journal Article: Price dispersion and loss leaders (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:4589708

Access Statistics for this paper

More papers in Scholarly Articles from Harvard University Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Office for Scholarly Communication ().