RETAIL

Retailer Market Power and Competition Policy

Coordinatore	ECOLE POLYTECHNIQUE    more  Organization address address: ROUTE DE SACLAY city: PALAISEAU postcode: 91128 contact info Titolo: Prof. Nome: Patrick Cognome: Rey Email: send email Telefono: -10491696 Fax: -61128675
Nazionalità Coordinatore	France [FR]
Totale costo	222˙047 €
EC contributo	222˙047 €
Programma	FP7-PEOPLE Specific programme "People" implementing the Seventh Framework Programme of the European Community for research, technological development and demonstration activities (2007 to 2013)
Code Call	FP7-PEOPLE-2009-IEF
Funding Scheme	MC-IEF
Anno di inizio	2010
Periodo (anno-mese-giorno)	2010-06-01   -   2012-05-31

 Partecipanti

#	participant	country	role	EC contrib. [€]
1	ECOLE POLYTECHNIQUE  Organization address address: ROUTE DE SACLAY city: PALAISEAU postcode: 91128 contact info Titolo: Prof. Nome: Patrick Cognome: Rey Email: send email Telefono: -10491696 Fax: -61128675	FR (PALAISEAU)	coordinator	222˙047.20

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 Obiettivo del progetto (Objective)

'The expanse of large retailers in recent decades leads to the high concentration in retail market, and the ever-growing market power of large retailers has caused serious concerns on detrimental impacts against small retailers. However, competition authorities face a dilemma in identifying market conditions under which the increase of retailer market power could impair competition. This research aims to provide normative analysis for this purpose, by developing a new model on retail competition based on consumer choices, and characterizing interactions between retailer buyer power against suppliers and seller power against competitors. The research project is based on the preceding work by the applicant, Dr. Zhijun Chen and Professor Patrick Rey, and would be conducted by a research group based on the host institute, the department of economics in Ecole Polytechnique, which consists of the scientist in charge, Professor Patrick Rey, the applicant and other researchers with closely related research interests.'

Introduzione (Teaser)

Loss leader pricing is an aggressive pricing approach where a store sells selected goods below cost in order to attract customers. According to the loss leader strategy, the customers make up for the losses on the highlighted product(s) with additional purchases of profitable goods.

Descrizione progetto (Article)

Employed by retail businesses, loss leader pricing lures customer traffic away from the businesses of retail competitors. Scrutinised for loss leader pricing, large national discount retailers in the EU defend this practice. Lawsuits alleging that some loss leader pricing strategies amount to illegal business practices have also increased, although plaintiffs have not always been victorious. Opponents of such pricing practices argue the strategy is basically predatory in nature. They say the strategy is designed to ultimately force competitors large and small out of business.

The EU-funded research project 'Retailer market power and competition policy' (RETAIL) compared loss leading strategy in two groups. The first comprised large retailers and small retailers, and the second only large retailers.

Between large and small retailers, loss leading appears to be an exploitative practice as opposed to an exclusionary one. In the second scenario, large retailers' return on investment is positive from multi-stop shoppers while fierce pricing competition threatens profit from one-stop shoppers.

In summary, loss leading can hurt the smaller retailer and banning the strategy would improve social welfare in the large retailer versus small retailer situation. In markets where retailers are similar in size, banning below-cost pricing is not harmful.

Project activities resulted in two working papers. The papers are titled 'Retailer Market Power' and 'Loss Leading and Cross-subsidization'. RETAIL findings are also published in the American Economic Review.

Fit for policymaking decisions, project results provide a solid theoretical finding for the EU.