The Welfare Losses from Price Matching Policies

Aaron S. Edlin and Eric R. Emch.
Authors registered in the RePEc Author Service: Aaron Edlin ()

No 97-257, Economics Working Papers from University of California at Berkeley

Abstract: Several recent papers argue that price matching policies raise equilibrium prices. We add to this literature by considering potential welfare losses, which have two sources: Harberger triangles from high prices and Posner rectangles from over-entry. We compare markets with price matching and free entry to the traditional concerns of antitrust law, monopoly or cartel markets without entry. Price matching with entry leads to greater welfare losses than both monopoly and cartel in markets with a low ratio of fixed to marginal cost and low demand elasticity. We illustrate these general results using parameters from the wholesale gasoline and air travel markets, and relate our model to price matching on NASDAQ.

Date: 1997-09-01
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Related works:
Working Paper: The Welfare Losses from Price Matching Policies (1998)
Journal Article: The Welfare Losses from Price-Matching Policies (1999)
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