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An Experimental Examination of Competitor-Based Price Matching Guarantees

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Author Info
Datta, Shakun
Offenberg, Jennifer

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Abstract

We use experimental methods to demonstrate the anti-competitive potential of price matching guarantees in both symmetric and asymmetric cost duopolies. Our findings establish that when costs are symmetric, price-matching guarantees significantly increase market prices. In markets with cost asymmetries, guaranteed prices remain high relative to prices without the use of guarantees, but the overall ability of price guarantees to act as a collusion facilitating device becomes contingent on the relative cost difference. Lesser use of guarantees, combined with lower average prices and slower convergence to the collusive level, suggest that the mere presence of cost asymmetries may curtail collusive behavior.

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File URL: http://mpra.ub.uni-muenchen.de/575/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 575.

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Date of creation: 01 Aug 2003
Date of revision: 22 Oct 2006
Handle: RePEc:pra:mprapa:575

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Related research
Keywords: Price Matching Price Guarantees Laboratory Collusion

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L4 - Industrial Organization - - Antitrust Issues and Policies

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  1. Morten Hviid & Greg Shaffer, 1999. "Hassle Costs: The Achilles' Heel of Price-Matching Guarantees," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 8(4), pages 489-521, December. [Downloadable!] (restricted)
  2. Cary A. Deck & Bart J. Wilson, 2003. "Automated Pricing Rules in Electronic Posted Offer Markets," Economic Inquiry, Oxford University Press, vol. 41(2), pages 208-223, April. [Downloadable!] (restricted)
  3. Maria Arbatskaya & Morten Hviid & Greg Shaffer, 1999. "On the incidence and Variety of Low-Price Guarantees," CIE Discussion Papers 1999-10, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
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  4. Zhiqi Chen, 1995. "How Low Is a Guaranteed-Lowest-Price?," Canadian Journal of Economics, Canadian Economics Association, vol. 28(3), pages 683-701, August. [Downloadable!] (restricted)
    Other versions:
  5. Baye, M.R. & Kovenock, D., 1992. "How to Sell a Pickup Truck; "Beat-or-Pay" Advertisements as Facilitating Devices"," Purdue University Economics Working Papers 1032, Purdue University, Department of Economics.
    Other versions:
  6. Monika Schnitzer, 1994. "Dynamic Duopoly with Best-Price Clauses," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 186-196, Spring. [Downloadable!] (restricted)
  7. Belton, Terrence M., 1987. "A model of duopoly and meeting or beating competition," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 399-417. [Downloadable!] (restricted)
  8. Brown-Kruse, Jamie, et al, 1994. "Bertrand-Edgeworth Competition in Experimental Markets," Econometrica, Econometric Society, vol. 62(2), pages 343-72, March. [Downloadable!] (restricted)
  9. John Duffy & Jack Ochs, 2006. "Cooperative Behavior and the Frequency of Social Interaction," Working Papers 274, University of Pittsburgh, Department of Economics, revised Jul 2008. [Downloadable!]
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  10. Png, I P L & Hirshleifer, D, 1987. "Price Discrimination through Offers to Match Price," Journal of Business, University of Chicago Press, vol. 60(3), pages 365-83, July. [Downloadable!] (restricted)
  11. Sridhar Moorthy & Ralph Winter, 2002. "Price-Matching Guarantees," Review of Marketing Science Working Papers 2-1-1020, Berkeley Electronic Press. [Downloadable!]
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  12. Doyle, Christopher, 1988. "Different selling strategies in Bertrand oligopoly," Economics Letters, Elsevier, vol. 28(4), pages 387-390. [Downloadable!] (restricted)
  13. Subhasish Dugar & Todd Sorensen, 2006. "Hassle Costs, Price-Matching Guarantees and Price Competition: An Experiment," Review of Industrial Organization, Springer, vol. 28(4), pages 359-378, June. [Downloadable!] (restricted)
  14. Arbatskaya, Maria & Hviid, Morten & Shaffer, Greg, 2006. "On the use of low-price guarantees to discourage price cutting," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1139-1156, November. [Downloadable!] (restricted)
  15. Enrique Fatás & Nikolaos Georgantzís & Juan Máñez & Gerardo Sabater-Grande, 2005. "Pro-competitive Price Beating Guarantees: Experimental Evidence," Review of Industrial Organization, Springer, vol. 26(1), pages 115-136, November. [Downloadable!] (restricted)
  16. Aaron S. Edlin and Eric R. Emch., 1997. "The Welfare Losses from Price Matching Policies," Economics Working Papers 97-257, University of California at Berkeley. [Downloadable!]
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  17. Pedro Dal Bó, 2005. "Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games," American Economic Review, American Economic Association, vol. 95(5), pages 1591-1604, December. [Downloadable!]
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  18. Logan, John W. & Lutter, Randall W., 1989. "Guaranteed lowest prices: do they facilitate collusion?," Economics Letters, Elsevier, vol. 31(2), pages 189-192, December. [Downloadable!] (restricted)
  19. Mason, Charles F & Phillips, Owen R & Nowell, Clifford, 1992. "Duopoly Behavior in Asymmetric Markets: An Experimental Evaluation," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 662-70, November. [Downloadable!] (restricted)
  20. Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 7-22, January. [Downloadable!] (restricted)
  21. 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. [Downloadable!] (restricted)
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