Price-Match Announcements in a Consumer Search Duopoly

66 Pages Posted: 23 Oct 2010 Last revised: 22 Jun 2016

See all articles by Aleksandr Yankelevich

Aleksandr Yankelevich

Federal Communications Commission

Brady Vaughan

Washington University in St. Louis

Date Written: August 17, 2014

Abstract

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

Suggested Citation

Yankelevich, Aleksandr and Vaughan, Brady, Price-Match Announcements in a Consumer Search Duopoly (August 17, 2014). Southern Economic Journal, Vol. 82, No. 4, 2016, Available at SSRN: https://ssrn.com/abstract=1695933 or http://dx.doi.org/10.2139/ssrn.1695933

Aleksandr Yankelevich (Contact Author)

Federal Communications Commission ( email )

445 12th Street SW
Rm. TW-B204
Washington, DC 20554
United States

HOME PAGE: http://https://aleksyankelevich.com/

Brady Vaughan

Washington University in St. Louis ( email )

Department of Economics
1 brookings drive
St. Louis, MO 63130
United States

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