Monday, March 26, 2018

Negative consumer value and loss leading

Caprice, Stéphane and Shekhar, Shiva explore Negative consumer value and loss leading.

ABSTRACT: Large retailers, competing with smaller stores that carry a narrower range, can exercise market power by pricing below cost 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 our insight to revisit some classic issues in vertical relations.

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