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Loss Leaders: An Indirect Empirical Test

Author

Listed:
  • Tom S. Lee

    (National Univ. of Singapore)

  • I.P.L. Png

    (National Univ. of Singapore)

Abstract

We apply an indirect method to test for the extent of loss leader pricing. Specifically, the extent of loss leader pricing should increase with the profit from other regularly-priced items. Bookstores customarily use bestsellers as loss leaders. Among conventional bookstores, we found that the bestseller discount systematically increased with the store area, selection of titles, and presence of other product categories. A one standard deviation increase in store area was associated with a 3.7 (± 1.8) higher bestseller percentage discount. Among online stores, we found that the bestseller discount systematically increased with the selection of titles and number of product categories. A one standard deviation increase in selection was associated with a 9.5 (± 2.2) higher bestseller percentage discount.

Suggested Citation

  • Tom S. Lee & I.P.L. Png, 2004. "Loss Leaders: An Indirect Empirical Test," Industrial Organization 0401008, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0401008
    Note: Type of Document - ; pages: 15
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    retail pricing; loss leaders; switching costs;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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