Competitive Cross-Subsidization

Zhijun Chen and Patrick Rey

No 24-16, Monash Economics Working Papers from Monash University, Department of Economics

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 bene.t 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.

Keywords: cross-subsidization; shopping patterns; multiproduct competition; co-opetition. (search for similar items in EconPapers)
JEL-codes: L11 L41 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2016-11
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
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Related works:
Journal Article: Competitive cross‐subsidization (2019)
Working Paper: Competitive Cross-Subsidization (2018)
Working Paper: Competitive Cross-Subsidization (2013)
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