Are price-matching guarantees anticompetitive? This paper examines the incentives for price-matching guarantees in markets where information about prices is costly. Under some conditions the conventional explanation of price-matching announcements as facilitating collusion finds support, and is even strengthened. But our model provides an additional explanation for the practice. A price-matching guarantee may be a credible and easily understood means of communicating to uninformed consumers that a firm is low-priced. The credibility of the signal to uninformed consumers is assured by the behaviour of informed consumers. We contrast the testable implications of our model with those of the anticompetitive theories and discuss supportive evidence from an illustrative sample of retailers.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 37 (2006)
Issue (Month): 2 (06)
|Contact details of provider:|| Postal: 1776 Main Street, P.O. Box 2138, Santa Monica, California 90407-2138|
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0741-6261
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/journal.asp?ref=0741-6261|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
- Curtis Eaton, B. & Lipsey, Richard G., 1989. "Product differentiation," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 12, pages 723-768 Elsevier.
- Grossman, Sanford J & Stiglitz, Joseph E, 1980.
"On the Impossibility of Informationally Efficient Markets,"
American Economic Review,
American Economic Association, vol. 70(3), pages 393-408, June.
- Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
- Katz, Michael L., 1989. "Vertical contractual relations," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 11, pages 655-721 Elsevier.
- Edlin, Aaron S & Emch, Eric R, 1999.
"The Welfare Losses from Price-Matching Policies,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 47(2), pages 145-67, June.
- 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.
- Aaron S. Edlin & Eric R. Emch, 1998. "The Welfare Losses from Price Matching Policies," Law and Economics 9803001, EconWPA, revised 26 May 1998.
- Jacquemin, Alexis & Slade, Margaret E., 1989. "Cartels, collusion, and horizontal merger," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 7, pages 415-473 Elsevier.
- Zhiqi Chen, 1995.
"How Low Is a Guaranteed-Lowest-Price?,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 28(3), pages 683-701, August.
- Zhiqi Chen, 1993. "How Low is a Garanteed-Lowest-Price?," Carleton Industrial Organization Research Unit (CIORU) 93-03, Carleton University, Department of Economics.
- d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979.
"On Hotelling's "Stability in Competition","
Econometric Society, vol. 47(5), pages 1145-50, September.
- Yuxin Chen & Chakravarthi Narasimhan & Z. John Zhang, 2001. "Consumer Heterogeneity and Competitive Price-Matching Guarantees," Marketing Science, INFORMS, vol. 20(3), pages 300-314, June.
- 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.
When requesting a correction, please mention this item's handle: RePEc:bla:randje:v:37:y:2006:i:2:p:449-465. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.