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Loss Leading as an Exploitative Practice

Patrick Rey and Zhijun Chen

No 658, IDEI Working Papers from Institut d'Économie Industrielle (IDEI), Toulouse

Abstract: We show that large retailers, competing with smaller stores that carry a narrower range, can exercise market power by pricing below cost some of the products also offered by the smaller rivals, in order to discriminate multi-stop shoppers from onestop shoppers. Loss leading thus appears as an exploitative device rather than as an exclusionary instrument, although it hurts the smaller rivals as well; banning below-cost pricing increases consumer surplus, rivals’ profits, and social welfare. Our insights extend to industries where established firms compete with entrants offering fewer products. They also apply to complementary products such as platforms and applications.

Keywords: loss leading; exploitative practice; retail power (search for similar items in EconPapers)
JEL-codes: L11 L41 (search for similar items in EconPapers)
Date: 2010-11, Revised 2011-12
New Economics Papers: this item is included in nep-com and nep-hme
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Related works:
Journal Article: Loss Leading as an Exploitative Practice (2012) Downloads
Working Paper: Loss Leading as an Exploitative Practice (2011) Downloads
Working Paper: Loss Leading as an Exploitative Practice (2010) Downloads
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