Do Guaranteed-Low-Price Policies Guarantee High Prices, and Can Antitrust Rise to the Challenge

Aaron Edlin ()

No 1153, Berkeley Olin Program in Law & Economics, Working Paper Series from Berkeley Olin Program in Law & Economics

Abstract: Price-matching policies can be highly anticompetitive. They allow firms to raise their prices above competitive levels by discriminating in price between informed and uninformed customers. The resulting high prices can persist even when new firms enter the industry, which gives price-matching the potential to be much more socially costly than "ordinary" monopoly. At the same time, widespread entry implies that the horizontal agreement typical of a Sherman Act price-fixing case may be absent. This article suggests using the price-discrimination laws to combat the practice, and examines whether price matchers should be able to protect themselves from such an attack with a "meeting competition" defense; the article concludes that the defense should be rejected in cases where price-matching significantly injures competition. The article also explores whether the vertical agreements between buyer and seller can violate the Sherman Act, and concludes that they can. Please contact the Program in Law and Economics at Boalt Hall School of Law, UC Berkeley, Berkeley, CA 94720 for a copy of this paper.

Date: 1995-07-03
Note: oai:cdlib1:blewp-1153
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