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How Low is a Garanteed-Lowest-Price?



A game based on the Bertrand duopoly model is constructed to study the effects of price guarantee policies. Before it chooses a list price, a firm can make a binding commitment to match or beat its competitor's price. The effectiveness of these price guarantee policies in facilitating price collusion depends on the solution concept used. Furthermore, there exists an equilibrium in which neither firm offers any price guarantees and each firm sets price equal to marginal cost.
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Suggested Citation

  • Zhiqi Chen, 1993. "How Low is a Garanteed-Lowest-Price?," Carleton Industrial Organization Research Unit (CIORU) 93-03, Carleton University, Department of Economics.
  • Handle: RePEc:car:ciorup:93-03

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    References listed on IDEAS

    1. Schankerman, Mark & Nadiri, M. Ishaq, 1986. "A test of static equilibrium models and rates of return to quasi-fixed factors, with an application to the Bell system," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 97-118.
    2. Zvi Griliches, 1998. "Issues in Assessing the Contribution of Research and Development to Productivity Growth," NBER Chapters,in: R&D and Productivity: The Econometric Evidence, pages 17-45 National Bureau of Economic Research, Inc.
    3. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, vol. 76(5), pages 984-1001, December.
    4. Richard Levin & Peter C. Reiss, 1984. "Tests of a Schumpeterian Model of R&D and Market Structure," NBER Chapters,in: R&D, Patents, and Productivity, pages 175-208 National Bureau of Economic Research, Inc.
    5. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-121, January.
    6. Evenson, Robert E & Kislev, Yoav, 1973. "Research and Productivity in Wheat and Maize," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1309-1329, Nov.-Dec..
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    Cited by:

    1. Anne T. Coughlan & Greg Shaffer, 2009. "—Price-Matching Guarantees, Retail Competition, and Product-Line Assortment," Marketing Science, INFORMS, vol. 28(3), pages 580-588, 05-06.
    2. Tassel, Eric Van, 2006. "Relationship lending under asymmetric information: A case of blocked entry," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 915-929, September.
    3. Mago, Shakun Datta & Pate, Jennifer G., 2009. "An experimental examination of competitor-based price matching guarantees," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 342-360, May.
    4. Enrique Fatás & Nikolaos Georgantzís & Juan A. Máñez & Gerardo Sabater, 2013. "Experimental duopolies under price guarantees," Applied Economics, Taylor & Francis Journals, vol. 45(1), pages 15-35, January.
    5. Arbatskaya, Maria, 2001. "Can low-price guarantees deter entry?," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1387-1406, November.
    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 307-332, April.
    7. Subhasish Dugar & Todd Sorensen, 2006. "Hassle Costs, Price-Matching Guarantees and Price Competition: An Experiment," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 28(4), pages 359-378, June.
    8. Pu-yan Nie, 2012. "Maintenance Commitments for Monopolized Goods," Prague Economic Papers, University of Economics, Prague, vol. 2012(1), pages 18-29.
    9. John Thanassoulis & David Gill, 2010. "The Optimal Marketing Mix of Posted Prices, Discounts and Bargaining," Economics Series Working Papers 479, University of Oxford, Department of Economics.
    10. repec:kap:qmktec:v:15:y:2017:i:2:d:10.1007_s11129-017-9182-0 is not listed on IDEAS
    11. Sridhar Moorthy & Ralph A. Winter, 2006. "Price‐matching guarantees," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 449-465, June.
    12. Kao, Tina & Menezes, Flavio & Quiggin, John, 2012. "Meeting the Competition: Commitment and Competitive Behavior," Risk and Sustainable Management Group Working Papers 151205, University of Queensland, School of Economics.
    13. 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.
    14. Szentes, Balázs, 2015. "Contractible contracts in common agency problems," LSE Research Online Documents on Economics 66071, London School of Economics and Political Science, LSE Library.
    15. Subhasish Dugar, 2007. "Price-Matching Guarantees and Equilibrium Selection in a Homogenous Product Market: An Experimental Study," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 30(2), pages 107-119, March.

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