Re:Ebay will match Amazon’s, Walmart’s and others’ prices on...
by frgtpsswrdlame on Wednesday June 21, 2017 @10:42AM
(#14604181)
>In any case, enforcing an automatic price-matching ban would be difficult. Would you prohibit firms from lowering their prices to match competitors'? If not, it would just take a few turns of the ratchet to send the message to would-be competitors (and consumers). Whether the consumer surplus from those ratchet turns are worth the enforcement cost is an open question.
Couldn't you just make a law saying "price-match guarantees are illegal"? Firms who explicitly move prices to match each other is fine with me, but the match guarantee is problematic. It seems that your conclusion is that companies use matching guarantees to implicitly collude but that even if we got rid of this they would still collude. But we should still stamp out collusion wherever we see it even if that puts us in a whack-a-mole situation.
The literature is mixed on the effects of price-matching guarantees [1][2]. The most compelling resolution I've read says "price-matching guarantees can facilitate monopoly pricing only if firms automatically match prices. If consumers must instead request refunds (thereby incurring hassle costs)...any increase in equilibrium prices due to firms’ price-matching policies will be small; often, no price increase can be supported" [3].
In any case, enforcing an automatic price-matching ban would be difficult. Would you prohibit firms from lowering their prices to match competitors'? If not, it would just take a few turns of the ratchet to send the message to would-be competitors (and consumers). Whether the consumer surplus from those ratchet turns are worth the enforcement cost is an open question.
[1] https://www.bauer.uh.edu/jhess/documents/10.pdf
[2] http://people.tamu.edu/~sjain/papers/published%20pmr%20paper...
[3] http://www.simon.rochester.edu/fac/SHAFFER/Published/Hassel%...