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The Welfare Losses From Price‐Matching PolicIes

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  • Aaron S. Edlin
  • Eric R. Emch

Abstract

Several 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.

Suggested Citation

  • Aaron S. Edlin & Eric R. Emch, 1999. "The Welfare Losses From Price‐Matching PolicIes," Journal of Industrial Economics, Wiley Blackwell, vol. 47(2), pages 145-167, June.
    • Handle: RePEc:bla:jindec:v:47:y:1999:i:2:p:145-167
    DOI: 10.1111/1467-6451.00095
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    Cited by:

    1. Oliver Budzinski, 2009. "Modern Industrial Economics and Competition Policy: Open Problems and Possible Limits," Working Papers 93/09, University of Southern Denmark, Department of Sociology, Environmental and Business Economics.
    2. Dong, Gang & Huang, Rongbing, 2022. "Inter-port price competition in a multi-port gateway region," Research in Transportation Economics, Elsevier, vol. 94(C).
    3. Kim, Byung-Cheol & Ahmed, Mishal, 2020. "Price-match guarantees and investment incentives," Information Economics and Policy, Elsevier, vol. 53(C).

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