Read the 10 best academic and business antitrust articles published in 2012!

Nominated by Julie Brill, Alexander Italianer, Frédéric Jenny, Bill Kovacic, Bruno Lasserre

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Loss Leading as an Exploitative Practice

Zhijun Chen and Patrick Rey, The American Economic Review, Volume 102, Number 7, December 2012 , pp. 3462-3482(21).

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We show that large retailers, competing with smaller stores that carry a narrower range, can exercise market power by pricing below cost some of the products also offered by the smaller rivals, in order to discriminate multi-stop shoppers from onestop shoppers. Loss leading thus appears as an exploitative device rather than as an exclusionary instrument, although it hurts the smaller rivals as well; banning below-cost pricing increases consumer surplus, rivals’ profits, and social welfare. Our insights extend to industries where established firms compete with entrants offering fewer products. They also apply to complementary products such as platforms and applications.

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