Price-Matching Guarantees and Equilibrium Selection in a Homogenous Product Market: An Experimental Study
AbstractPrice-matching guarantees have been alleged to sustain collusive prices in a homogenous product market. Theories in this literature also suggest that there exist multiple equilibria (i.e., a set of price equilibria between the competitive and the monopoly price) when all sellers adopt these guarantees in such a market. Theoretical prediction in this case fails to pin down the actual behavior of players a priori. This paper illustrates the essential role of controlled experiment in testing the collusive theory of price-matching guarantees and thereby shedding light on the embedded equilibrium selection problem. In particular, this paper studies two highly stylized market models, obtains testable predictions, and lays out the design of the controlled experiment. Results indicate that these guarantees facilitate collusion among sellers and thus solve the equilibrium selection problem considerably. Copyright Springer Science+Business Media, LLC 2007
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Bibliographic InfoArticle provided by Springer in its journal Review of Industrial Organization.
Volume (Year): 30 (2007)
Issue (Month): 2 (March)
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Web page: http://www.springerlink.com/link.asp?id=100336
Price-matching guarantees; Collusion; Homogenous product market; Equilibrium selection; Experiment; L11; L12; C91;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
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