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Price‐Matching Policies and Entry
Author(s) -
CasadoIzaga F. Javier
Publication year - 1999
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00088
Subject(s) - matching (statistics) , economics , competitor analysis , microeconomics , price discrimination , welfare , economic surplus , price policy , social welfare , market economy , agriculture , ecology , statistics , mathematics , management , political science , law , biology
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.