Cross subsidization is the practice of charging higher prices to one type of consumers to artificially lower prices for another group.

State trading enterprises State trading enterprises are enterprises authorized to engage in trade (exporting and/or importing) that are owned, sanctioned, or otherwise supported by government. STEs are legitimate trading entities and are subject to GATT rules. Examples i ...

with

monopoly A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...

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. In many countries,

telecommunications Telecommunication is the transmission of information by various types of technologies over wire, radio, optical, or other electromagnetic systems. It has its origin in the desire of humans for communication over a distance greater than that fe ...

(including

broadband access Internet access is the ability of individuals and organizations to connect to the Internet using computer terminals, computers, and other devices; and to access services such as email and the World Wide Web. Internet access is sold by Internet ...

es),

postal service The mail or post is a system for physically transporting postcards, letters, and parcels. A postal service can be private or public, though many governments place restrictions on private systems. Since the mid-19th century, national postal syst ...

s, electricity tariffs, and

collective traffic A collective is a group of entities that share or are motivated by at least one common issue or interest, or work together to achieve a common objective. Collectives can differ from cooperatives in that they are not necessarily focused upon an ...

among others are cross-subsidized. In some cases, there is a universal price ceiling for the services, leading to cross subsidies benefiting the areas for which the costs of provision are high.

Criticism

According to

Osmo Soininvaara Osmo Heikki Kristian Soininvaara (born 2 September 1951 in Helsinki) is a Finnish politician and writer. He served as Minister of Social Services in Paavo Lipponen's second cabinet between 14 April 2000 and 19 April 2002. He was the leader of the ...

, political economics author and statistician and Finnish parliamentarian, cross-subsidy leads to welfare losses for passengers in urban areas, arguing that even if there are reasons for subsidizing public transport in sparsely populated areas, it is better to provide subsidy from general taxation rather than have passengers in more densely populated areas provide subsidy by directing profits from reinvestment in these services. This results in higher fares, lower staff wages, lower frequencies and older vehicles on popular services, reduce the attractiveness of services and spreading financial risks of unprofitable services to profitable services and can result in cuts to profitable services to cover expected and unexpected losses. Cross-subsidy puts the financial burden for unprofitable services on passengers who often have the least ability to pay. He also notes that in sparsely populated areas, cars are often more ecologically friendly than buses. Some economists argue that cross subsidization in state owned enterprises increases the likelihood of anticompetitive practices such as predatory pricing. They argue that regulators, such as U.S. postal regulators, should monitor a state monopoly's cost allocation to ensure that revenue generated in the monopolized market is not used to lessen competition in competitive markets.J. Gregory Sidak, Maximizing the Postal Service's Profits from Competitive Products, 11 J. COMP. L. & ECON. 617 (2015)

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References

* {{Authority control United States Department of Agriculture

Criticism

See also

References