A1732
Title: Loss-leader pricing on hybrid platforms: A multiproduct perspective
Authors: Yusuke Zennyo - Kobe University (Japan) [presenting]
Yushi Tsunoda - Kobe University (Japan)
Yuto Ishihara - Kobe University (Japan)
Abstract: A model of a hybrid platform that hosts multiple products and enables consumers to fill their baskets through one-stop shopping is developed. Each product is supplied by a manufacturer and sold via competing third-party sellers, while the platform also enters as a first-party seller. One-stop shopping turns otherwise independent products into effective complements, creating a cross-product demand externality (the Cournot externality). The platform may optimally price one product below cost (loss-leader pricing) to internalize this Cournot externality, particularly when manufacturers' wholesale prices are high. Ceteris paribus, loss-leader pricing benefits the platform, consumers, and manufacturers, yielding a Pareto improvement. However, this positive outcome may fail to arise -and indeed leave all parties worse off- when manufacturers strategically raise wholesale prices in anticipation of the platform's loss-leading. The analysis finds that whenever loss-leading is profitable for the platform, it also benefits consumers and manufacturers, providing a procompetitive rationale for first-party selling by hybrid platforms.
