Department of Economics and Business Economics

Output decisions and price matching: Theory and experiment

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DOI

  • Mongoljin Batsaikhan, Georgetown University- School of Foreign Services in Qatar
  • ,
  • Norovsambuu Tumennasan, Dalhousie University

We study the effects of price matching in a setting in which each firm selects both its price and output, simultaneously. We show that the availability of a price-matching option leads to the Cournot outcome in this setting. Our experimental study confirms this result in the laboratory. Our finding is a stark contrast to the one obtained in the standard price competition that the most likely market price in the presence of a price-matching option is the monopolistic price. In addition, we show that price matching benefits consumers in markets with a large number of firms. If a market has a few firms, then the effects of price matching on consumers depend on the market demand and cost functions. Thus, our study suggests that the effect of price matching depends on the strategic variables of the firms.

Original languageEnglish
JournalManagement Science
Volume64
Issue8
Pages (from-to)3609-3624
Number of pages16
ISSN0025-1909
DOIs
Publication statusPublished - 1 Aug 2018

    Research areas

  • Cournot outcome, Output decision, Price matching

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