Do Guaranteed-Low-Price Policies Guarantee High Prices and Can Antitrust Rise to the Challenge?
Posted: 20 Jan 1998
Date Written: October 1995
Price-matching policies can be highly anticompetitive. They allow firms to raise their prices above competitive levels by discriminating in price between informed and uninformed customers. The resulting high prices can persist even when new firms enter the industry which gives price-matching the potential to be much more socially costly than "ordinary" monopoly. At the same time wide-spread entry implies that the horizontal agreement typical of a Sherman Act price-fixing case may be absent. This article suggests using the price-discrimination laws to combat the practice and examines whether price matchers should be able to protect themselves from such an attack with a "meeting competition" defense; the article concludes that the defense should be rejected in cases where price-matching significantly injures competition. The article also explores whether the vertical agreements between buyer and seller can violate the Sherman Act and concludes that they can.
JEL Classification: I28, L51, L89
Suggested Citation: Suggested Citation