Price dispersion and loss leaders

Artikel

Dispersion in retail prices of identical goods is inconsistent with the standard model of price competition among identical firms, which predicts that all prices will be driven down to cost. One common explanation for such dispersion is the use of a loss-leader strategy, in which a firm prices one good below cost in order to attract a higher customer volume for profitable goods. By assuming each consumer is forced to buy all desired goods at a single firm, we create the possibility of an effective loss-leader strategy. We find that such a strategy cannot occur in equilibrium if individual demands are inelastic, or if demands are diversely distributed. We further show that equilibrium loss leaders can occur (and can result in positive profits) if there are demand complementarities, but only with delicate relationships among the preferences of all consumers.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Theoretical Economics ; ISSN: 1555-7561 ; Volume: 3 ; Year: 2008 ; Issue: 4 ; Pages: 525-537 ; New York, NY: The Econometric Society

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: General ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
• Subject: Price competition ; price dispersion ; loss leaders

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Weinstein, Jonathan ; Ambrus, Attila
• Event: Veröffentlichung
• (who): The Econometric Society
• (where): New York, NY
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/150121
• Last update: 10.03.2025, 11:45 AM CET