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On the Incidence and Variety of Low-Price Guarantees

Listed author(s):
  • Arbatskaya, Maria
  • Hviid, Morten
  • Shaffer, Greg

This paper provides evidence of the incidence and variety of low-price guarantees (promises to match or beat a rival's price) using data obtained from newspaper advertisements in 37 metropolitan areas in the United States. We have a total of 515 low-price guarantees in our sample. We document their features, and we infer firms' motives and effects from these features. The evidence suggests that the majority of low-price guarantees are not consistent with their use as a facilitating device because they tend to apply only to rival firms' advertised prices or they are associated with high hassle costs. The evidence also suggests that price-beating and price-matching guarantees differ significantly in their features. The former are associated with higher hassle costs, apply disproportionately to rival firms' advertised prices, and are more likely to allow postsale search than are price-matching guarantees.

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File URL: http://dx.doi.org/10.1086/386275
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Article provided by University of Chicago Press in its journal Journal of Law and Economics.

Volume (Year): 47 (2004)
Issue (Month): 1 (April)
Pages: 307-332

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Handle: RePEc:ucp:jlawec:y:2004:v:47:i:1:p:307-32
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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  1. Baye, M.R. & Kovenock, D., 1990. "How To Sell a Pickup Truck : "Beat-or-Pay" Advertisements as Facilitating Devices," Discussion Paper 1990-53, Tilburg University, Center for Economic Research.
  2. 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 365-383, July.
  3. Doyle, Christopher, 1988. "Different selling strategies in Bertrand oligopoly," Economics Letters, Elsevier, vol. 28(4), pages 387-390.
  4. Crocker, K.J. & Lyon, T.P., 1993. "What Do "Facilitating Practices" Facilitates? An Empirical Investigation of Most-Favored Nation Clauses in Natural Gas Contracts," Papers 10-93-2, Pennsylvania State - Department of Economics.
  5. 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.
  6. 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.
  7. 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.
  8. Zhiqi Chen, 1995. "How Low Is a Guaranteed-Lowest-Price?," Canadian Journal of Economics, Canadian Economics Association, vol. 28(3), pages 683-701, August.
  9. 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.
  10. Kaplan, Todd R., 2000. "Effective price-matching: a comment," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1291-1294, December.
  11. 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.
  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. Arbatskaya, Maria, 2001. "Can low-price guarantees deter entry?," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1387-1406, November.
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