Question

Assume a duopoly of office supply big box stores where each carries the same merchandise and each advertises that it will "meet or beat" any competitor's price. Assume further that they have no online competition from anyone else. How does the "meet or beat" policy affect buyers in terms of the prices offered to them over the long run? What does this suggest about oligopolistic behavior generally? Make sure you decide whether and how consumers would benefit from this situation.

Answer 1

A duopoly is a market situation wherein there are only 2 dominant players in the market, that supply goods and services to meet up with the demand. When this happens, there is no significant competition from outside, however the duopoly in itself has to set a price matching mechanism so that it can maximize its revenue.

In the current scenario, this has clearly been established. The concept of price matching has been established so that the firms can be sure that they do not lose demand. As there are only two sellers in the market place, they sell at equal prices and invite their customers to the meet or beat challenge meaning that they would meet the price of the other competitor in the market place at any cost.

This tells us that in a duopoly it is essential for both the parties to be in synchronization with one another and to have equal prices. The reason for this is that if one party were to sell at a higher rate, all demand would shift over to the other competitor in the market. Also, if they sold at a lower price, they would make significant losses.

Thus, oligopolistic behaviour revolves around ensuring that firms sell at equal price so that both of them get equal returns for their capital invested. It is only through this that they may achieve success.

For the consumers, this ensures that the prices of the product or service being offered in the market does not change in the long run too much. The core benefit is that prices remain stable over the years and are offered at similar rates of competitors. The consumer while making his purchase decision, knows the fact that he will have to pay equal amounts of money no matter where the product is purchased from.

Please feel free to ask your doubts in the comments section.