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Unbeatable Value Low‐Price Guarantee: Collusive Mechanism or Advertising Strategy?

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  • Juan A. Mañez

Abstract

This paper investigates the effects of a low‐price guarantee (price‐beating guarantee) on the patterns of price setting of three supermarkets using micro‐level price data. Following recent theoretical developments, the paper analyzes the ability of low‐price guarantees to sustain anticompetitive prices. My empirical analysis suggests instead that this low‐price guarantee may serve as an advertising device to signal low prices. The supermarket offering the low‐price guarantee, aware of its price advantage in a subset of products, uses it to signal low prices to induce consumers to switch supermarkets.

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  • Juan A. Mañez, 2006. "Unbeatable Value Low‐Price Guarantee: Collusive Mechanism or Advertising Strategy?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 143-166, March.
    • Handle: RePEc:bla:jemstr:v:15:y:2006:i:1:p:143-166
    DOI: 10.1111/j.1530-9134.2006.00095.x
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    References listed on IDEAS

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    1. Arbatskaya, Maria & Hviid, Morten & Shaffer, Greg, 2004. "On the Incidence and Variety of Low-Price Guarantees," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 307-332, April.
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    4. Morten Hviid & Greg Shaffer, 1999. "Hassle Costs: The Achilles' Heel of Price‐Matching Guarantees," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(4), pages 489-521, December.
    5. Hviid, Morton & Shaffer, Greg, 1994. "Do low-price Guarantees facilitate Collusion?," The Warwick Economics Research Paper Series (TWERPS) 422, University of Warwick, Department of Economics.
    6. Corts, Kenneth S., 1995. "On the robustness of the argument that price-matching is anti-competitive," Economics Letters, Elsevier, vol. 47(3-4), pages 417-421, March.
    7. Joseph E. Stiglitz & G. Frank Mathewson (ed.), 1986. "New Developments in the Analysis of Market Structure," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262690934, December.
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    Cited by:

    1. Koh, Dong-Hee & Moon, Junyean & Schellhase, Ralf, 2012. "Price-matching guarantees: Influences on pricing strategy in a market with asymmetric firms," Journal of Business Research, Elsevier, vol. 65(11), pages 1551-1557.
    2. Enrique Fatás & Nikolaos Georgantz & Juan A. Máñez & Gerardo Sabater, 2013. "Experimental duopolies under price guarantees," Applied Economics, Taylor & Francis Journals, vol. 45(1), pages 15-35, January.

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