IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-18-00315.html
   My bibliography  Save this article

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

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2019/Volume39/EB-19-V39-I1-P11.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Zhijun Chen & Patrick Rey, 2019. "Competitive cross‐subsidization," RAND Journal of Economics, RAND Corporation, vol. 50(3), pages 645-665, September.
    2. Zhijun Chen & Patrick Rey, 2012. "Loss Leading as an Exploitative Practice," American Economic Review, American Economic Association, vol. 102(7), pages 3462-3482, December.
    3. Scheffman, David T & Spiller, Pablo T, 1992. "Buyer's Strategies, Entry Barriers, and Competition," Economic Inquiry, Western Economic Association International, vol. 30(3), pages 418-436, July.
    4. Stéphane Caprice & Patrick Rey, 2015. "Buyer Power from Joint Listing Decision," Economic Journal, Royal Economic Society, vol. 125(589), pages 1677-1704, December.
    5. Stéphane Caprice, 2006. "Multilateral Vertical Contracting with an Alternative Supply: The Welfare Effects of a Ban on Price Discrimination," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 28(1), pages 63-80, February.
    6. Vanessa von Schlippenbach, 2015. "Sales at a loss: who benefits?," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 42(2), pages 269-286.
    7. Caprice, Stéphane & Shekhar, Shiva, 2017. "On the countervailing power of large retailers when shopping costs matter," TSE Working Papers 17-771, Toulouse School of Economics (TSE).
    8. Katz, Michael L, 1987. "The Welfare Effects of Third-Degree Price Discrimination in," American Economic Review, American Economic Association, vol. 77(1), pages 154-167, March.
    9. Justin P. Johnson, 2017. "Unplanned Purchases and Retail Competition," American Economic Review, American Economic Association, vol. 107(3), pages 931-965, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Caprice, Stéphane & Shekhar, Shiva, 2017. "Negative consumer value and loss leading," DICE Discussion Papers 271, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    2. Jeon, Doh-Shin & Menicucci, Domenico, 2019. "On the unprofitability of buyer groups when sellers compete," Games and Economic Behavior, Elsevier, vol. 115(C), pages 265-288.
    3. Andrew Rhodes & Jidong Zhou, 2019. "Consumer Search and Retail Market Structure," Management Science, INFORMS, vol. 67(6), pages 2607-2623, June.
    4. Sofia Berto Villas‐Boas, 2009. "An empirical investigation of the welfare effects of banning wholesale price discrimination," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 20-46, March.
    5. David Mills, 2013. "Countervailing Power and Chain Stores," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(3), pages 281-295, May.
    6. Eguia, Jon X. & Llorente-Saguer, Aniol & Morton, Rebecca & Nicolò, Antonio, 2018. "Equilibrium selection in sequential games with imperfect information," Games and Economic Behavior, Elsevier, vol. 109(C), pages 465-483.
    7. Youping Li, 2017. "Differential Pricing in Intermediate Good Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 65(3), pages 585-596, September.
    8. Vanessa von Schlippenbach & Isabel Teichmann, 2012. "The Strategic Use of Private Quality Standards in Food Supply Chains," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(5), pages 1189-1201.
    9. Hans-Theo Normann & Bradley J. Ruffle & Christopher M. Snyder, 2007. "Do buyer-size discounts depend on the curvature of the surplus function? Experimental tests of bargaining models," RAND Journal of Economics, RAND Corporation, vol. 38(3), pages 747-767, September.
    10. Pio Baake & Vanessa Schlippenbach, 2011. "Quality distortions in vertical relations," Journal of Economics, Springer, vol. 103(2), pages 149-169, June.
    11. Herweg, Fabian & Müller, Daniel, 2010. "Price Discrimination in Input Markets: Downstream Entry and Welfare," Bonn Econ Discussion Papers 06/2010, University of Bonn, Bonn Graduate School of Economics (BGSE).
    12. Jorge Florez-Acosta & Daniel Herrera-Araujo, 2017. "Multiproduct retailing and buyer power: The effects of product delisting on consumer shopping behavior," Working Papers halshs-01467435, HAL.
    13. Fabian Herweg & Daniel Müller, 2014. "Price Discrimination in Input Markets: Quantity Discounts and Private Information," Economic Journal, Royal Economic Society, vol. 124(577), pages 776-804, June.
    14. Sara Fisher Ellison & Christopher M. Snyder, 2010. "Countervailing Power In Wholesale Pharmaceuticals," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 32-53, March.
    15. Marie-Laure Allain & Claire Chambolle & Stéphane Turolla, 2022. "The Effect of Input Price Discrimination on Retail Prices: Theory and Evidence from France," Working Papers SMART 22-06, INRAE UMR SMART.
    16. repec:diw:diwwpp:dp464 is not listed on IDEAS
    17. Inderst, Roman & Wey, Christian, 2007. "Buyer power and supplier incentives," European Economic Review, Elsevier, vol. 51(3), pages 647-667, April.
    18. Herweg, Fabian & Müller, Daniel, 2016. "Discriminatory nonlinear pricing, fixed costs, and welfare in intermediate-goods markets," International Journal of Industrial Organization, Elsevier, vol. 46(C), pages 107-136.
    19. Andrea Attar & Thomas Mariotti & François Salanié, 2022. "Regulating Insurance Markets: Multiple Contracting And Adverse Selection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 981-1020, August.
    20. Kangsik Choi & DongJoon Lee & Seonyoung Lim, 2022. "A Note on Input Price Discrimination Under Bertrand Competition: Simultaneous vs. Sequential Contracting," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 61(2), pages 223-246, September.
    21. Jeon, Doh-Shin & Menicucci, Domenico, 2014. "Buyer Group and Buyer Power When Sellers Compete," TSE Working Papers 14-543, Toulouse School of Economics (TSE), revised Nov 2017.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-18-00315. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.