Working paper

Negative consumer value and loss leading

Stéphane Caprice, and Shiva Shekhar

Abstract

Large retailers competing with smaller stores that carry a narrower range can exercise market power by pricing below cost for some of their products. Below-cost pricing arises as an exploitative device rather than a predatory device (e.g., Chen and Rey, 2012). Unlike standard textbook models, we show that positive consumer value is not required in these frameworks. Large retailers can sell products offering consumers a negative value. We use this insight to revisit some classic issues in vertical relations.

Keywords

Multi-product retailers; loss-leading; negative consumer value;

JEL codes

  • L13: Oligopoly and Other Imperfect Markets
  • L81: Retail and Wholesale Trade • e-Commerce

Reference

Stéphane Caprice, and Shiva Shekhar, Negative consumer value and loss leading, TSE Working Paper, n. 17-835, August 2017.

See also

Published in

TSE Working Paper, n. 17-835, August 2017