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On the Incidence and Variety of Low-Price Guarantees

Author

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  • Arbatskaya, Maria
  • Hviid, Morten
  • Shaffer, Greg

Abstract

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.

Suggested Citation

  • 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 307-332, April.
  • Handle: RePEc:ucp:jlawec:y:2004:v:47:i:1:p:307-32
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    File URL: http://dx.doi.org/10.1086/386275
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    References listed on IDEAS

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    1. Zhiqi Chen, 1995. "How Low Is a Guaranteed-Lowest-Price?," Canadian Journal of Economics, Canadian Economics Association, vol. 28(3), pages 683-701, August.
    2. 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.
    3. 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.
    4. Edlin, Aaron S & Emch, Eric R, 1999. "The Welfare Losses from Price-Matching Policies," Journal of Industrial Economics, Wiley Blackwell, vol. 47(2), pages 145-167, June.
    5. Kaplan, Todd R., 2000. "Effective price-matching: a comment," International Journal of Industrial Organization, Elsevier, vol. 18(8), pages 1291-1294, December.
    6. 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.
    7. Doyle, Christopher, 1988. "Different selling strategies in Bertrand oligopoly," Economics Letters, Elsevier, vol. 28(4), pages 387-390.
    8. Crocker, Keith J & Lyon, Thomas P, 1994. "What do Facilitating Practices Facilitate? An Empirical Investigation of Most-Favored-Nation Clauses in Natural Gas Contracts," Journal of Law and Economics, University of Chicago Press, vol. 37(2), pages 297-322, October.
    9. 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.
    10. 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.
    11. 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.
    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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    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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