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.
multiproduct retailers loss-leading negative consumer value