Monday, August 19, 2013
Posted by D. Daniel Sokol
Norovsambuu Tumennasan (Department of Economics and Business, Aarhus University) and Mongoljin Batsaikhan (Georgetown University) argue that Price-Matching leads to the Cournot Outcome.
ABSTRACT: We study the effects of price-matching in a duopoly setting in which each firm selects both its price and output, simultaneously. We show that the availability of a pricematching option leads to the Cournot outcome in this setting. This result is a stark contrast to the one obtained in the standard Bertrand competition that the market price in the presence of a price-matching option ranges from the monopolistic price to the Bertrand price. Our result suggests that the effect of price-matching depends on whether the output is a choice variable for the firms.