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Matching Own Prices, Rivals' Prices, or Both

Author

Listed:
  • Morten Hviid

    (ESRC Centre for Competition Policy and Norwich Law School, University of East Anglia)

  • Greg Shaffer

    (ESRC Centre for Competition Policy, University of East Anglia, and Simon School of Business, University of Rochester)

Abstract

Many retailers promise that they will not be undersold by rivals (price-matching guarantees) and extend their promise to include their own future prices (most-favored-customer clauses). This is puzzling because the extant literature has shown that each promise independently has the potential to facilitate supracompetitive prices, and so one might think that the two promises are substitutes. In this paper, we consider why a firm might make both promises in the same guarantee, and show that price-matching guarantees and most-favored-customer clauses complement each other and can lead to higher prices than either one could have facilitated by itself.

Suggested Citation

  • Morten Hviid & Greg Shaffer, 2008. "Matching Own Prices, Rivals' Prices, or Both," Working Papers 08-26, Centre for Competition Policy, University of East Anglia.
    • Handle: RePEc:ccp:wpaper:wp08-26
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    File URL: http://www.ccp.uea.ac.uk/publicfiles/workingpapers/CCP08-26.pdf
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    Cited by:

    1. is not listed on IDEAS
    2. Bottasso, Anna & Marocco, Paolo & Robbiano, Simone, 2020. "Price matching and platform pricing," MPRA Paper 104811, University Library of Munich, Germany.
    3. Tingliang Huang & Zhe Yin & Ying-Ju Chen, 2017. "Managing Posterior Price Matching: The Role of Customer Boundedly Rational Expectations," Manufacturing & Service Operations Management, INFORMS, vol. 19(3), pages 385-402, July.
    4. Sun, Yanhong & Sheng, Yiyun & Yan, Shuai & Zhang, Wei, 2023. "Pricing strategies in reward-based crowdfunding: Whether to introduce price guarantee?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 170(C).
    5. Elhauge, Einer & Wickelgren, Abraham L., 2015. "Robust exclusion and market division through loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 111-121.
    6. Aydinliyim, Tolga & Pangburn, Michael S. & Rabinovich, Elliot, 2017. "Inventory disclosure in online retailing," European Journal of Operational Research, Elsevier, vol. 261(1), pages 195-204.
    7. Granero, Lluís M., 2013. "Most-favored-customer pricing, product variety, and welfare," Economics Letters, Elsevier, vol. 120(3), pages 579-582.
    8. Trost, Michael, 2021. "The collusive efficacy of competition clauses in Bertrand Markets with capacity-constrained retailers," Hohenheim Discussion Papers in Business, Economics and Social Sciences 04-2021, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    9. Trost, Michael, 2022. "Unraveling the spreading pattern of collusively effective competition clauses," Hohenheim Discussion Papers in Business, Economics and Social Sciences 01-2022, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    10. Constantinou, Evangelos & Bernhardt, Dan, 2018. "The price-matching dilemma," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 97-113.
    11. Aleksandr Yankelevich & Brady Vaughan, 2016. "Price‐Match Announcements in a Consumer Search Duopoly," Southern Economic Journal, John Wiley & Sons, vol. 82(4), pages 1186-1211, April.

    More about this item

    Keywords

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    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • 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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