Opposite Effects of Meeting and Beating Competition

Low Price Guarantees (LPG’s) are adopted in a large variety of markets. Under the right conditions and form of LPG, this can lead to an increase in prices. This paper shows that automatically matching the competitor can lead to higher prices and loss of welfare. Beating a competitor by a specified amount or percentage will not be effective. When consumers incur hassle costs to claim a lower price, matching a competitor’s price will be ineffective and competition enhancing effects are possible. However, beating a competitor by a fixed amount can lead to supra-competitive outcomes, while beating a competitor by a percentage of the difference will not result in higher prices