American Economic Review Vol. 107 No. 3 2017
Unplanned Purchases and Retail Competition
open access
Abstract
I propose a framework in which asymmetric multiproduct retailers compete for one-stop shoppers who have biased beliefs about their future purchase probabilities (and so make unplanned purchases). One firm carries a full portfolio of products while the other carries an incomplete but endogenous one. Using this framework, I examine the phenomenon of loss leading, the optimal product portfolio of the smaller firm, and the effects of banning loss leading. Among other results, I show that there is a nonpredatory (and possibly procompetitive) justification for the observation that such larger firms may charge below cost on the core product lines of their smaller rivals.
- DOI
- 10.1257/aer.20140605
- Volume
- 107
- Issue
- 3
- Pages
- 931-965
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref