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 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.
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Bibliographic InfoPaper provided by EconWPA in its series Law and Economics with number 9803001.
Length: 38 pages
Date of creation: 12 Mar 1998
Date of revision: 26 May 1998
Note: 38 pages. LaTeX format (.dvi), Six figures are embedded in the text.
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Other versions of this item:
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
- D60 - Microeconomics - - Welfare Economics - - - General
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