0 a situation in which profits from one activity are used to pay for another activity that is losing money or making less money: --
Most definitions of cross-subsidization are more restrictive, however, in that they implicitly or explicitly include revenues and require that losses on one service are funded through profits from another.
In conclusion, this most restrictive type of cross-subsidy definition limits the reasons for cross-subsidization to either be an information problem or a non-profit motive as discussed earlier.
In other cases, the cause of inadvertent cross-subsidization might be more fundamental, as in multiservice firms with high sunk costs and low variable costs such as telecommunications.
Indeed, they result in a cross-subsidization of high-risk, high-income individuals by low-risk, low-income individuals.
However, implicit cross-subsidization cannot be financially sustainable in a competitive insurance market.
Based on the three types of cross-subsidy definitions, we developed a framework for classifying cases of cross-subsidization according to underlying motivation and effect on competition.
In the private sector, cross-subsidization occurs within firms that allow some of their services to be sold at less than incremental cost.
The observed relationship therefore provides evidence of cross-subsidization between different risk categories.
