The Welfare Losses from Price Matching Policies
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 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.
|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.|
|Contact details of provider:|| Web page: http://184.108.40.206|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Severin Borenstein, 1991. "Selling Costs and Switching Costs: Explaining Retail Gasoline Margins," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 354-369, Autumn.
- Crocker, Keith J & Lyon, Thomas P, 1994.
"What do Facilitating Practices Facilitate? An Empirical Investigation of Most-Favored-Nation Clauses in Natural Gas Contracts,"
Journal of Law and Economics,
University of Chicago Press, vol. 37(2), pages 297-322, October.
- Crocker, K.J. & Lyon, T.P., 1993. "What Do "Facilitating Practices" Facilitates? An Empirical Investigation of Most-Favored Nation Clauses in Natural Gas Contracts," Papers 10-93-2, Pennsylvania State - Department of Economics.
- Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
- Christie William G. & Huang Roger D., 1994. "Market Structures and Liquidity: A Transactions Data Study of Exchange Listings," Journal of Financial Intermediation, Elsevier, vol. 3(3), pages 300-326, June.
- Doyle, Christopher, 1988. "Different selling strategies in Bertrand oligopoly," Economics Letters, Elsevier, vol. 28(4), pages 387-390.
- Corts, Kenneth S., 1995. "On the robustness of the argument that price-matching is anti-competitive," Economics Letters, Elsevier, vol. 47(3-4), pages 417-421, March.
- Kandel, Eugene & Marx, Leslie M., 1997. "Nasdaq market structure and spread patterns," Journal of Financial Economics, Elsevier, vol. 45(1), pages 61-89, July.
- Christie, William G & Harris, Jeffrey H & Schultz, Paul H, 1994. " Why Did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1841-60, December.
- Huang, Roger D. & Stoll, Hans R., 1996. "Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE," Journal of Financial Economics, Elsevier, vol. 41(3), pages 313-357, July.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwple:9803001. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.