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Price-Matching Policies: Cut-Throat Competition or Oligopolistic Coordination?

Author

Listed:
  • Hess, James D.
  • Gerstner, Eitan

Abstract

Promises by retailers to match the prices of their competitors give an impression of fierce price competition. On the other hand, these policies may deter rivals from cutting prices because the threat of price-matching makes it more likely that market share will not be gained. This paper empirically tests these two conflicting theories using data collected from grocery stores. in a market where several stores had announced that they would match the prices of the low-price supermarket. The evidence supports the theory that pricematching policies help supermarkets avoid price competition and therefore lead to generally higher prices.

Suggested Citation

  • Hess, James D. & Gerstner, Eitan, "undated". "Price-Matching Policies: Cut-Throat Competition or Oligopolistic Coordination?," Department of Economics and Business - Archive 259438, North Carolina State University, Department of Economics.
    • Handle: RePEc:ags:ncbuar:259438
    DOI: 10.22004/ag.econ.259438
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    References listed on IDEAS

    as
    1. Terrence M. Belton, 1986. "A model of duopoly and meeting or beating competition," Research Papers in Banking and Financial Economics 87, Board of Governors of the Federal Reserve System (U.S.).
    2. James D. Hess & Eitan Gerstner, 1987. "Loss Leader Pricing and Rain Check Policy," Marketing Science, INFORMS, vol. 6(4), pages 358-374.
    3. Blanciforti, Laura & Green, Richard, 1983. "An Almost Ideal Demand System Incorporating Habits: An Analysis of Expenditures on Food and Aggregate Commodity Groups," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 511-515, August.
    4. Ehud Kalai & Mark A. Satterthwaite, 1986. "The Kinked Demand Curve," Discussion Papers 677, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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