Price-Match Announcements in a Consumer Search Duopoly
66 Pages Posted: 23 Oct 2010 Last revised: 22 Jun 2016
Date Written: August 17, 2014
Using a model of sequential search, we show that announcements to price-match raise prices by altering consumer search behavior. First, price-matching diminishes firms' incentives to lower prices to attract consumers who have no search costs. Second, for consumers with positive search costs, price-matching lowers the marginal benefit of search, inducing them to accept higher prices. Finally, price-matching can lead to asymmetric equilibria where one firm runs fewer sales and both firms tend to offer smaller discounts than in a symmetric equilibrium. Price increases grow in the proportion of consumers who invoke price-matching guarantees and in the level of equilibrium asymmetry.
Keywords: Price Match, Sequential Consumer Search, Price Dispersion
JEL Classification: D43, D83, L13, M31
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