Cross subsidization
Encyclopedia
Cross subsidization is the practice of charging higher prices to one group of consumers in order to subsidize lower prices for another group. State trading enterprises
with monopoly
control over marketing agricultural exports are sometimes alleged to cross subsidize, but lack of transparency in their operations makes it difficult if not impossible to determine if that is the case.
Consider the example of going to dinner with 2 of your friends. Leo Lemes's meal costs 15$, Lin Yu's meal costs 20$, and your meal costs 25$. The total bill is then $60 and everyone decides to split the bill evenly: everyone pays $20. In effect you are undercosted, and Leo Lemes is cross-subsidizing you (as you pay 5$ less than your actual cost).
An example of cross subsidization often occurs in the banking industry. Fees associated with maintaining a low account balance (below $1,000 for example) are charged to these customers to maintain their profitability.
State trading enterprises
State trading enterprises are enterprises authorized to engage in trade that are owned, sanctioned, or otherwise supported by government. STEs are legitimate trading entities and are subject to GATT rules. Examples include the Canadian Wheat Board, the Australian Wheat Board, and the Fonterra...
with monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
control over marketing agricultural exports are sometimes alleged to cross subsidize, but lack of transparency in their operations makes it difficult if not impossible to determine if that is the case.
Consider the example of going to dinner with 2 of your friends. Leo Lemes's meal costs 15$, Lin Yu's meal costs 20$, and your meal costs 25$. The total bill is then $60 and everyone decides to split the bill evenly: everyone pays $20. In effect you are undercosted, and Leo Lemes is cross-subsidizing you (as you pay 5$ less than your actual cost).
An example of cross subsidization often occurs in the banking industry. Fees associated with maintaining a low account balance (below $1,000 for example) are charged to these customers to maintain their profitability.