Market Equilibrium with Price-Beating Firms Under Imperfect Knowledge
7 Pages Posted: 31 Jul 2018
Date Written: 2009
Abstract
It is unquestionable both theoretically and empirically that trade in competitive markets is the best way to promote the efficient allocation of goods. Nevertheless, there could be some traders’ strategies that interfere with competition, collusion among traders, which results in losses to society. In this work, I study the implication that guarantees have on the competitiveness of the market when information is imperfect and costly. In formal terms, I study the ‘price matching’ and ‘price beating’ guarantees that may be extended to other types of guarantee.
From the theoretical model it results that both strategies are anti-competitive strategy but, contrary to ‘price matching’, ‘price beating’ is not in the best interest of sellers (in a Nash equilibrium perspective).
Keywords: Collusion; Price beating guarantees; Imperfect information
JEL Classification: D82, D83, L12
Suggested Citation: Suggested Citation