IDEAS home Printed from https://ideas.repec.org/p/cea/doctra/e2004_33.html
   My bibliography  Save this paper

Are Low-Price Compromises Collusion Guarantees? An Experimental Test of Price Matching Policies

Author

Abstract

In a symmetric differentiated experimental duopoly we test the ability of Price Matching Guarantees (PMG) to rise prices above the competitive levels. PMG is introduced both as a market institution (the effective selling price is always the lowest posted price) and as a strategic choice so subjects have to decide whether or not to offer it. Our results show that PMG leads to a clear collusive outcome as markets quickly and fully converge to the collusive prediction if PM is imposed as a market institution. If subjects are allowed to decide whether to adopt PMG or not we observe that almost all subjects decide to adopt PMG and prices get very close to the collusive ones.

Suggested Citation

  • Enrique Fatás & Juan A. Mañez, 2004. "Are Low-Price Compromises Collusion Guarantees? An Experimental Test of Price Matching Policies," Economic Working Papers at Centro de Estudios Andaluces E2004/33, Centro de Estudios Andaluces.
  • Handle: RePEc:cea:doctra:e2004_33
    as

    Download full text from publisher

    File URL: http://public.centrodeestudiosandaluces.es/pdfs/E200433.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Joel Waldfogel & Jeffrey Milyo, 1999. "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," American Economic Review, American Economic Association, vol. 89(5), pages 1081-1096, December.
    2. Hviid, Morton & Shaffer, Greg, 1994. "Do low-price Guarantees facilitate Collusion?," The Warwick Economics Research Paper Series (TWERPS) 422, University of Warwick, Department of Economics.
    3. Dufwenberg, Martin & Gneezy, Uri, 2000. "Price competition and market concentration: an experimental study," International Journal of Industrial Organization, Elsevier, vol. 18(1), pages 7-22, January.
    4. 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.
    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. Garcia-Gallego, Aurora & Georgantzis, Nikolaos, 2001. "Multiproduct activity in an experimental differentiated oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 493-518, March.
    7. Arbatskaya, Maria, 2001. "Can low-price guarantees deter entry?," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1387-1406, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    price-matching guarantees; experimental economics;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cea:doctra:e2004_33. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Susana Mérida). General contact details of provider: http://edirc.repec.org/data/fcanges.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.