Abstract
This paper challenges the conventional wisdom that price-matching policies lead to supracompetitive prices by reducing firms' incentives to undercut rivals. I argue that price-matching and price-beating policies are more appropriately viewed as a means of price discrimination and develop a model that demonstrates their use as such. Analysis of this model shows that, in contrast to the results of the existing literature, price-matching and price-beating may raise or lower equilibrium prices relative to the equilibrium in which firms may not adopt such policies.
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