Cross-subsidisation arises naturally when firms with different comparative advantages compete for consumers with heterogeneous shopping patterns. Firms then face a form of co-opetition, as they offer substitutes for one-stop shoppers and complements for multi-stop shoppers. When intense competition for one-stop shoppers drives total prices down to cost, firms subsidise weak products with the profit made on strong products. Firms have moreover incentives to seek comparative advantages on different products. Finally, banning below-cost pricing increases firms’ profits at the expense of one-stop shoppers, which calls for a cautious use of below-cost pricing regulations in competitive markets.
Patrick Rey is a Professor of Economics at the University of Toulouse and a member of the Toulouse School of Economics, as well as a research director of the Institut d’Economie Industrielle, which he previously headed. Before joining Toulouse, he led the Laboratoire d’Economie Industrielle (LEI) at CREST (INSEE, Paris), which he founded, and what is now the Ecole Nationale de la Statistique et de l’Administration Economique (ENSAE, Paris). He holds a PhD in Economics from the University of Toulouse, an engineering degree from Ecole Polytechnique, where he has also been a professor, and a statistician-economist degree from ENSAE.
His current themes of research include industrial organisation, regulation and competition policy, innovation and intellectual property. He has published numerous papers and book contributions, including more than 20 articles in international top-tier economic journals such as Econometrica, the American Economic Review, the Review of Economic Studies and the RAND Journal of Economics. He has also developed an innovative pedagogical tool using a “market game”.
Patrick Rey is a fellow of the Econometric Society as well as of the European Economic Association (EEA), has been a senior member of the Institut Universitaire de France (IUF) and received a senior grant from the European Research Council (ERC); he holds a Honoris Causa doctorate degree from the Norwegian School of Economics (Bergen) and has been President of the European Association for Research in Industrial Economics (EARIE).
He is widely recognised as a leading expert in competition economics. He has testified in many antitrust cases in Europe and elsewhere, conducted numerous competition workshops and seminars, and served as expert for OECD, the World Bank, the US Department of Justice and the European Commission; he is also a member of advisory bodies attached to regulatory and competition agencies (for example, coordinating the EAGCP expert group on Article 82 for the European Commission) and was a co-founder of the Association for Competition Economics (ACE).