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.
Multi-product retailers; loss-leading; negative consumer value;
- L13: Oligopoly and Other Imperfect Markets
- L81: Retail and Wholesale Trade • e-Commerce
TSE Working Paper, n. 17-835, August 2017