Cross-subsidization arises naturally when rms with di¤erent 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 rms subsidize weak products with the pro t made on strong products. While rms and consumers would bene t from cooperation limiting cross- subsidization (e.g., through price caps), banning below-cost pricing instead increases rmspro ts at the expense of one-stop shoppers; this calls for a cautious use of below-cost pricing regulations in competitive markets.
cross-subsidization; shopping patterns; multiproduct competition; co-opetition
- L11: Production, Pricing, and Market Structure • Size Distribution of Firms
- L41: Monopolization • Horizontal Anticompetitive Practices