- lots of companies have price matching policies
- signal: “Don’t undercut me, you are not benefiting”
- they are just eliminating Competition
- not illegal, unlike Cartels
Undercutting Policy
- not just matching, but undercutting the price of the competition
- as soon as one player starts undercutting the prices will collapse to a competitive equilibrium
- “refund of 110% of price difference”
- clauses like: “only beating advertised prices”
- eliminates race-to-the-bottom with going back and forth
Costs
- if my costs are higher than those of the competition I should not apply a price matching policy