A rationale for repealing the 1987 Groceries Order
A ban on pricing below cost was implemented under the 1987 Groceries Order based on the premise that loss leading used in multi-product retail pricing distorts competition and exploits consumers in the short run, while driving a more concentrated structure and reducing welfare in the long run. Loss leading is examined for multi-product retailers selling in imperfectly competitive market niches with imperfect consumer information. We develop a theoretical argument in a simple two-stage framework that illustrates how loss leading on a subset of products is an equilibrium outcome of price competition that leaves overall welfare equal to that observed under laissez faire.
Year of publication: |
1999
|
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Authors: | Whelan, Ciara ; Walsh, Patrick P. |
Institutions: | School of Economics, University College Dublin |
Subject: | Grocery trade-Law and legislation | Price regulation-Ireland | Loss leaders-Ireland |
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