IDEAS home Printed from https://ideas.repec.org/a/eee/mateco/v49y2013i5p375-388.html
   My bibliography  Save this article

Quantity precommitment and price-matching

Author

Listed:
  • Tumennasan, Norovsambuu

Abstract

We study the effects of price-matching in a capacity-constrained duopoly setting. We show that no firm does worse at any pure equilibrium under price-matching relative to Bertrand, but as capacity increases, one or both firms do better relative to Bertrand. If the firms choose their capacities simultaneously before making pricing decisions, then the effect of price-matching varies with the cost of capacity. Specifically, when the cost is “high” price-matching either (i) has no effect on the market price, i.e., the market price associated with the pure SPEs is the Cournot one, or (ii) weakly decreases the market price relative to Cournot. Furthermore, when the cost is “low” price-matching leads to a set of (pure) SPE prices that includes the Cournot price in the interior. Therefore, price-matching does not necessarily benefit the firms when firms select their capacities before competing in price.

Suggested Citation

  • Tumennasan, Norovsambuu, 2013. "Quantity precommitment and price-matching," Journal of Mathematical Economics, Elsevier, vol. 49(5), pages 375-388.
    • Handle: RePEc:eee:mateco:v:49:y:2013:i:5:p:375-388
    DOI: 10.1016/j.jmateco.2013.06.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304406813000499
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jmateco.2013.06.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Arbatskaya, Maria & Hviid, Morten & Shaffer, Greg, 2004. "On the Incidence and Variety of Low-Price Guarantees," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 307-332, April.
    2. Png, I P L & Hirshleifer, D, 1987. "Price Discrimination through Offers to Match Price," The Journal of Business, University of Chicago Press, vol. 60(3), pages 365-383, July.
    3. Doyle, Christopher, 1988. "Different selling strategies in Bertrand oligopoly," Economics Letters, Elsevier, vol. 28(4), pages 387-390.
    4. Morten Hviid & Greg Shaffer, 1999. "Hassle Costs: The Achilles' Heel of Price‐Matching Guarantees," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(4), pages 489-521, December.
    5. Osborne, Martin J. & Pitchik, Carolyn, 1986. "Price competition in a capacity-constrained duopoly," Journal of Economic Theory, Elsevier, vol. 38(2), pages 238-260, April.
    6. Subhasish Dugar & Todd Sorensen, 2006. "Hassle Costs, Price-Matching Guarantees and Price Competition: An Experiment," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 28(4), pages 359-378, June.
    7. 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.
    8. Kaplan, Todd R., 2000. "Effective price-matching: a comment," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1291-1294, December.
    9. Sridhar Moorthy & Ralph A.Winter, 2006. "Price-Matching Guarantees," RAND Journal of Economics, The RAND Corporation, vol. 37(2), pages 449-465, Summer.
    10. Joseph E. Stiglitz & G. Frank Mathewson (ed.), 1986. "New Developments in the Analysis of Market Structure," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262690934, December.
    11. Belton, Terrence M., 1987. "A model of duopoly and meeting or beating competition," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 399-417.
    12. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Trost, Michael, 2022. "Unraveling the spreading pattern of collusively effective competition clauses," Hohenheim Discussion Papers in Business, Economics and Social Sciences 01-2022, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    2. Chen, Ming & Chen, Zhi-Long, 2024. "Stop clicking around and book direct: Impact of best rate guarantee on hotel pricing," European Journal of Operational Research, Elsevier, vol. 313(3), pages 1088-1104.
    3. Norovsambuu Tumennasan & Mongoljin Batsaikhan, 2013. "Price-Matching leads to the Cournot Outcome," Economics Working Papers 2013-12, Department of Economics and Business Economics, Aarhus University.
    4. Mongoljin Batsaikhan & Norovsambuu Tumennasan, 2018. "Output Decisions and Price Matching: Theory and Experiment," Management Science, INFORMS, vol. 64(8), pages 3609-3624, August.
    5. Jacques Thépot, 2021. "Pricing algorithms in oligopoly with decreasing returns," Theory and Decision, Springer, vol. 91(4), pages 493-515, November.
    6. Trost, Michael, 2021. "The collusive efficacy of competition clauses in Bertrand Markets with capacity-constrained retailers," Hohenheim Discussion Papers in Business, Economics and Social Sciences 04-2021, University of Hohenheim, Faculty of Business, Economics and Social Sciences.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Trost, Michael, 2021. "The collusive efficacy of competition clauses in Bertrand Markets with capacity-constrained retailers," Hohenheim Discussion Papers in Business, Economics and Social Sciences 04-2021, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    2. Trost, Michael, 2022. "Unraveling the spreading pattern of collusively effective competition clauses," Hohenheim Discussion Papers in Business, Economics and Social Sciences 01-2022, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    3. Mago, Shakun Datta & Pate, Jennifer G., 2009. "An experimental examination of competitor-based price matching guarantees," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 342-360, May.
    4. Pio Baake & Ulrich Schwalbe, 2013. "Price Guarantees, Consumer Search, and Hassle Costs," Discussion Papers of DIW Berlin 1335, DIW Berlin, German Institute for Economic Research.
    5. Enrique Fatás & Nikolaos Georgantz & Juan A. Máñez & Gerardo Sabater, 2013. "Experimental duopolies under price guarantees," Applied Economics, Taylor & Francis Journals, vol. 45(1), pages 15-35, January.
    6. Mongoljin Batsaikhan & Norovsambuu Tumennasan, 2018. "Output Decisions and Price Matching: Theory and Experiment," Management Science, INFORMS, vol. 64(8), pages 3609-3624, August.
    7. Subhasish Dugar, 2007. "Price-Matching Guarantees and Equilibrium Selection in a Homogenous Product Market: An Experimental Study," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(2), pages 107-119, March.
    8. Arcan Nalca & Tamer Boyaci & Saibal Ray, 2010. "Competitive price-matching guarantees under imperfect store availability," Quantitative Marketing and Economics (QME), Springer, vol. 8(3), pages 275-300, September.
    9. Samir Mamadehussene, 2021. "Measuring the competition effects of price-matching guarantees," Quantitative Marketing and Economics (QME), Springer, vol. 19(3), pages 261-287, December.
    10. Pinar Akman & Morten Hviid, 2005. "A Most-Favoured-Customer Guarantee with a Twist," Working Papers 05-8, Centre for Competition Policy, University of East Anglia.
    11. Yuxin Chen & Chakravarthi Narasimhan & Z. John Zhang, 2001. "Consumer Heterogeneity and Competitive Price-Matching Guarantees," Marketing Science, INFORMS, vol. 20(3), pages 300-314, June.
    12. Norovsambuu Tumennasan & Mongoljin Batsaikhan, 2013. "Price-Matching leads to the Cournot Outcome," Economics Working Papers 2013-12, Department of Economics and Business Economics, Aarhus University.
    13. Andreas Pollak, 2017. "Do Price-Matching Guarantees with Markups Facilitate Tacit Collusion? Theory and Experiment," Working Paper Series in Economics 93, University of Cologne, Department of Economics.
    14. Arcan Nalca & Tamer Boyaci & Saibal Ray, 2013. "Competitive Price-Matching Guarantees: Equilibrium Analysis of the Availability Verification Clause Under Demand Uncertainty," Management Science, INFORMS, vol. 59(4), pages 971-986, April.
    15. Janssen, Maarten C.W. & Parakhonyak, Alexei, 2013. "Price matching guarantees and consumer search," International Journal of Industrial Organization, Elsevier, vol. 31(1), pages 1-11.
    16. Juan A. Mañez, 2006. "Unbeatable Value Low‐Price Guarantee: Collusive Mechanism or Advertising Strategy?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 143-166, March.
    17. Anne T. Coughlan & Greg Shaffer, 2009. "—Price-Matching Guarantees, Retail Competition, and Product-Line Assortment," Marketing Science, INFORMS, vol. 28(3), pages 580-588, 05-06.
    18. Enrique Fatas & Juan Mañez, 2007. "Are low-price promises collusion guarantees? An experimental test of price matching policies," Spanish Economic Review, Springer;Spanish Economic Association, vol. 9(1), pages 59-77, March.
    19. Arbatskaya, Maria & Hviid, Morten & Shaffer, Greg, 2006. "On the use of low-price guarantees to discourage price cutting," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1139-1156, November.
    20. Morten Hviid & Greg Shaffer, 2010. "Matching Own Prices, Rivals' Prices Or Both?," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 479-506, September.

    More about this item

    Keywords

    Price matching; Capacity constraint; Quantity precommitment;
    All these keywords.

    JEL classification:

    • L00 - Industrial Organization - - General - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:mateco:v:49:y:2013:i:5:p:375-388. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jmateco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.