A rationale for repealing the 1987 Groceries Order
Walsh, Patrick Paul
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Citation:Walsh, Patrick Paul; Whelan, Ciara. 'A rationale for repealing the 1987 Groceries Order'. - Economic & Social Review, Vol. 30, No. 1, January, 1999, pp. 71-90, Dublin: Economic & Social Research Institute
A ban on pricing below cost was implemented under the 1987 Groceries Order based on the premise that loss leading used in multi-product retail pricing distorts competition and exploits consumers in the short run, while driving a more concentrated structure and reducing welfare in the long run. Loss leading is examined for multi-product retailers selling in imperfectly competitive market niches with imperfect consumer information. We develop a theoretical argument in a simple two-stage framework that illustrates how loss leading on a subset of products is an equilibrium outcome of price competition that leaves overall welfare equal to that observed under laissez faire.
Publisher:Economic & Social Research Institute