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Price-Match Announcements in a Consumer Search Duopoly

Aleksandr Yankelevich and Brady Vaughan ()
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Brady Vaughan: Department of Economics, Washington University in St. Louis, Campus Box 1208, St. Louis, MO 63130, USA

Southern Economic Journal, 2016, vol. 82, issue 4, 1186-1211

Abstract: Using a model of sequential search, we show that announcements to price-match raise prices by altering consumer search behavior. First, price-matching diminishes firms’ incentives to lower prices to attract consumers who have no search costs. Second, for consumers with positive search costs, price-matching lowers the marginal benefit of search, inducing them to accept higher prices. Finally, price-matching can lead to asymmetric equilibria where one firm runs fewer sales and both firms tend to offer smaller discounts than in a symmetric equilibrium. Price increases grow in the proportion of consumers who invoke price-matching guarantees and in the level of equilibrium asymmetry.

JEL-codes: D43 D83 L13 M31 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:sej:ancoec:v:82:4:y:2016:p:1186-1211