Competitive Cross-Subsidization

Zhijun Chen and Patrick Rey

No 13-450, TSE Working Papers from Toulouse School of Economics (TSE)

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 benefit 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)
Date: 2013-12, Revised 2018-11
New Economics Papers: this item is included in nep-com
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Competitive cross‐subsidization (2019)
Working Paper: Competitive Cross-Subsidization (2016)
Working Paper: Competitive Cross-Subsidization (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:27777

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