Final answer:
Price matching policies might harm consumers by maintaining high prices and dampening competition. Businesses may not need to reduce prices, leading to a reduction in market-driven price declines. However, these effects can be limited in the long run as overpriced businesses may not survive when consumers seek better values.
Step-by-step explanation:
An advertisement offering to match competitors' prices may seem to offer a benefit to consumers by suggesting they will not find a lower price elsewhere. However, economic analysis reveals that this strategy may actually hurt consumers by maintaining high prices. Firms may implicitly coordinate on relatively high prices, knowing that they won't have to compete by offering lower prices due to the price-matching promise.
While competition typically drives down prices, leads to innovation, and provides consumers with better or less expensive products, price matching can mitigate these competitive effects. Hence, businesses with better or cheaper products may not increase their market share as expected, while consumers may face artificially high prices. Moreover, if most businesses adopt price matching, the incentive for consumers to shop around is reduced, which could further dampen competitive pressures.
Nonetheless, in the long term, market forces tend to prevail. Overpriced businesses that do not offer value to the consumer will likely not last, as buyers become more informed and seek out better deals elsewhere. Thus, the effect of price matching on maintaining high prices might be limited over time.