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Negative market value and loss leading

Author

Listed:
  • Stephane Caprice

    (Toulouse School of Economics, INRA, University of Toulouse Capitole, Toulouse, France)

  • Shiva Shekhar

    (Düsseldorf Intitute for Competition Economics (DICE), Heinrich-Heine-Universität)

Abstract

Multi-product retailers competing with smaller retailers can exercise market power by pricing below cost products also offered by smaller rivals. Loss-leading is not a predatory strategy: rather pro-competitive justifications are invoked. Unlike standard textbook models, we show that positive market value, that is, consumer valuation larger than production cost, is not required in this line of research examining the phenomenon of loss-leading. Multi-product retailers can supply products offering negative market value. We use this insight to revisit some classic issues in vertical relations.

Suggested Citation

  • Stephane Caprice & Shiva Shekhar, 2019. "Negative market value and loss leading," Economics Bulletin, AccessEcon, vol. 39(1), pages 94-103.
    • Handle: RePEc:ebl:ecbull:eb-18-00315
    as

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    References listed on IDEAS

    as
    1. Zhijun Chen & Patrick Rey, 2012. "Loss Leading as an Exploitative Practice," American Economic Review, American Economic Association, vol. 102(7), pages 3462-3482, December.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Multi-product retailers; loss-leading; negative market value;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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