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Quantity precommitment and price-matching

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  • 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
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    Cited by:

    1. 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.
    2. Jacques Thépot, 2021. "Pricing algorithms in oligopoly with decreasing returns," Theory and Decision, Springer, vol. 91(4), pages 493-515, November.
    3. 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.
    4. 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.
    5. Mongoljin Batsaikhan & Norovsambuu Tumennasan, 2018. "Output Decisions and Price Matching: Theory and Experiment," Management Science, INFORMS, vol. 64(8), pages 3609-3624, August.
    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.

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    More about this item

    Keywords

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

    JEL classification:

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

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