The Welfare Losses from Price-Matching Policies
AbstractSeveral 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 price-matching markets with entry to monopoly and price-matching markets without entry, and find that price matching with entry creates greater welfare losses than monopoly in markets with a low ratio of fixed to marginal cost. We illustrate this result using parameters from the US wholesale gasoline and air travel markets and relate our model to price matching among NASDAQ market makers.
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Bibliographic InfoPaper provided by Berkeley Olin Program in Law & Economics in its series Berkeley Olin Program in Law & Economics, Working Paper Series with number qt43b7w47c.
Date of creation: 01 Jun 1999
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