Continuous cross subsidies and quantity restrictions

This article provides a model of loss leader pricing and quantity restrictions for a competitive multiproduct industry when individual consumers have continuous (and independent) demands for the set of available goods. Utilizing a generalization of the model proposed by Bliss [1988], we demonstrate...

Full description

Saved in:
Bibliographic Details
Published inThe Journal of industrial economics Vol. LVI; no. 4; pp. 840 - 861
Main Authors Beard, T Randolph, Stern, Michael L
Format Journal Article
LanguageEnglish
Published 01.12.2008
Subjects
Imperfect competition
Industrial economics
Industrial organization
Price policy
Pricing
Product management
Online AccessGet full text

Cover

More Information
Summary:This article provides a model of loss leader pricing and quantity restrictions for a competitive multiproduct industry when individual consumers have continuous (and independent) demands for the set of available goods. Utilizing a generalization of the model proposed by Bliss [1988], we demonstrate the importance of consumer heterogeneity for the existence of cross subsidies when there is complete information and individual consumers have smooth, downward sloping demands. Continuous cross subsidies arising from consumer heterogeneity are also shown to exist in Hotelling models. Our use of continuous rather than `unit' demands allows us to analyze issues related to welfare, which in turn exposes a strong incentive for the firm to place binding quantity restrictions on consumers. We also show how the presence of quantity restrictions can be used to distinguish between continuous cross subsidies arising from heterogeneous consumers versus those arising from classic demand complementarity with homogeneous agents. Reprinted by permission of Blackwell Publishers
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
content type line 23
ObjectType-Feature-1
ISSN:0022-1821