Patrick Rey (Toulouse School of Economics) on "Competitive Cross-Subsidization" (with Zhijun Chen, Monash University)

Speaker:  Patrick Rey - Toulouse School of Economics
  Wednesday, June 6, 2018 at 12:30 PM Polo Santa Marta, Via Cantarane 24, Sala Vaona
Cross-subsidization arises naturally when firms with different comparative advantages compete for consumers with heterogeneous shopping patterns. Firms then face a form of co-opetition, as they offer substitutes for one-stop shoppers and complements for multi-stop shoppers. Competition for one-stop shoppers drives total prices down to cost, but firms subsidize weak products with the profit made on strong products. Firms and consumers would benefit from cooperation limiting cross-subsidization (e.g., through price caps). Banning below-cost pricing instead increases firms‛ profits at the expense of one-stop shoppers, which calls for a cautious use of below-cost pricing regulations in competitive markets.

Programme Director
Angelo Zago

Publication date
November 16, 2017