Price-Matching Policies and Entry

F. Casado-Izaga

Bulletin of Economic Research, 1999, vol. 51, issue 4, 327-38

Abstract: A price-matching policy is a commonly observed pricing practice in retailing markets. When firms use this policy they are publicly committing themselves to match the prices of their competitors. The aim of this analysis is to show that, in a spatial free-entry model, the effects of a price-matching policy are an increase in the number of sellers, an increase in prices and a decrease in consumer surplus and social welfare. Moreover, there is the striking result that in a price-matching equilibrium an increase in the number of firms entering the market raises prices. Copyright 1999 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

Date: 1999
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