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Hassle Costs, Price-Matching Guarantees and Price Competition: An Experiment

  • Subhasish Dugar

    ()

  • Todd Sorensen

We experimentally investigate whether the collusion-facilitating nature of price-matching guarantees survives the introduction of hassle costs incurred by buyers to enforce these guarantees. The presence of an arbitrarily small number of positive hassle costs buyers may completely undermine incentives for collusion. To evaluate this possibility, we develop four one-shot price competition models that test the hassle cost argument by varying proportions of positive and zero hassle cost buyers present in the market. Although the theory predicts that the competitive price should emerge in equilibrium in all four models, we experimentally find significant price differences. Copyright Springer 2006

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File URL: http://hdl.handle.net/10.1007/s11151-006-9103-y
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Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 28 (2006)
Issue (Month): 4 (June)
Pages: 359-378

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Handle: RePEc:kap:revind:v:28:y:2006:i:4:p:359-378
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100336

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  1. 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.
  2. 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.
  3. Zhiqi Chen, 1993. "How Low is a Garanteed-Lowest-Price?," Carleton Industrial Organization Research Unit (CIORU) 93-03, Carleton University, Department of Economics.
  4. Dufwenberg, Martin & Gneezy, Uri, 1999. "Price Competition and Market Concentration: An experimental Study," Research Papers in Economics 1999:4, Stockholm University, Department of Economics.
  5. Baye, Michael R. & Kovenock, Dan, 1994. "How to sell a pickup truck : 'Beat-or-pay' advertisements as facilitating devices," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 21-33, March.
  6. 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 307-32, April.
  7. Edlin, Aaron S. & Emch, Eric R., 1999. "The Welfare Losses from Price-Matching Policies," Berkeley Olin Program in Law & Economics, Working Paper Series qt43b7w47c, Berkeley Olin Program in Law & Economics.
  8. Png, I P L & Hirshleifer, D, 1987. "Price Discrimination through Offers to Match Price," The Journal of Business, University of Chicago Press, vol. 60(3), pages 365-83, July.
  9. Cary A. Deck & Bart J. Wilson, 2003. "Automated Pricing Rules in Electronic Posted Offer Markets," Economic Inquiry, Western Economic Association International, vol. 41(2), pages 208-223, April.
  10. 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.
  11. Arbatskaya, Maria, 2001. "Can low-price guarantees deter entry?," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1387-1406, November.
  12. Logan, John W. & Lutter, Randall W., 1989. "Guaranteed lowest prices: do they facilitate collusion?," Economics Letters, Elsevier, vol. 31(2), pages 189-192, December.
  13. Corts, Kenneth S., 1997. "On the competitive effects of price-matching policies," International Journal of Industrial Organization, Elsevier, vol. 15(3), pages 283-299, May.
  14. David Dickinson & Ronald Oaxaca, 2005. "The Equivalence of Panel Data Estimators under Orthogonal Experimental Design," Working Papers 05-07, Department of Economics, Appalachian State University.
  15. 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.
  16. Doyle, Christopher, 1988. "Different selling strategies in Bertrand oligopoly," Economics Letters, Elsevier, vol. 28(4), pages 387-390.
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