Datta, Shakun and Offenberg, Jennifer (2003): An Experimental Examination of Competitor-Based Price Matching Guarantees.
Download (324kB) | Preview
We use experimental methods to demonstrate the anti-competitive potential of price matching guarantees in both symmetric and asymmetric cost duopolies. Our findings establish that when costs are symmetric, price-matching guarantees significantly increase market prices. In markets with cost asymmetries, guaranteed prices remain high relative to prices without the use of guarantees, but the overall ability of price guarantees to act as a collusion facilitating device becomes contingent on the relative cost difference. Lesser use of guarantees, combined with lower average prices and slower convergence to the collusive level, suggest that the mere presence of cost asymmetries may curtail collusive behavior.
|Item Type:||MPRA Paper|
|Original Title:||An Experimental Examination of Competitor-Based Price Matching Guarantees|
|Keywords:||Price Matching; Price Guarantees; Laboratory; Collusion|
|Subjects:||D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
L - Industrial Organization > L4 - Antitrust Issues and Policies
|Depositing User:||Jennifer Offenberg|
|Date Deposited:||25. Oct 2006|
|Last Modified:||17. Feb 2013 18:42|
Arbatskaya, M., M. Hviid, and G. Shaffer, 1999, Promises to Match or Beat the Competition: Evidence from Retail Tire Prices. Advances in Applied Microeconomics, vol. 8: Oligopoly, JAI Press, 123-138.
Arbatskaya, M., M. Hviid, and G. Shaffer, 2004, On the Incidence and Variety of Low-Price Guarantees. Journal of Law and Economics 45, 307-332.
Arbatskaya, M., M. Hviid, and G. Shaffer, 2005, On the Use of Low-Price Guarantees to Discourage Price-Cutting. Forthcoming, International Journal of Industrial Organization.
Baye, M., Kovenock, D., 1994, How to Sell a Pickup Truck: ‘Beat-or-Pay’ Advertisements as Facilitating Devices. International Journal of Industrial Organization 12, 21-33.
Belton, T., 1987, A Model of Duopoly and Meeting or Beating Competition. International Journal of Industrial Organization 5, 399-417.
Brown-Kruse, J., Rassenti, S., Reynolds, S., Smith, V., 1994, Bertrand-Edgeworth Competition in Experimental Markets. Econometrica 62, 343-372.
Butz, D., 1993, Meeting-the-Competition, Guaranteed Retailer Margins, and Vertical Price Fixing. UCLA Working Paper #688.
Chatterjee, S., Roy, S., 1997, Consumer Reactions to Price-Matching Signals. Advances in Consumer Research 24, 400-404.
Chen, Z., 1995, How Low is a Guaranteed-Lowest-Price? Canadian Journal of Economics 28, 683-701.
Corts, K., 1995, On the Robustness of the Argument that Price-Matching is Anti-Competitive. Economics Letters 47, 417-421.
Corzine, R., 1996, Petrol Rivals on Price-War Footing. Financial Times, January 18.
Dal Bó, P., 2005, Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games. American Economic Review 95, 1591-1604.
Deck, C., Wilson, B., 2003, Automated Pricing Rules in Electronic Posted Offer Markets. Economic Inquiry 41, 208-223.
Doyle, C., 1988, Different Selling Strategies in Bertrand Oligopoly. Economics Letters 28, 387-390.
Duffy, J., Ochs, J., 2006, Cooperative Behavior and the Frequency of Social Interaction. Working Paper 274, University of Pittsburgh.
Dufwenberg, M., Gneezy, U., 2000, Price Competition and Market Concentration: An Experimental Study. International Journal of Industrial Organization 18, 7-22.
Dugar, S., 2005, Do Price-Matching Guarantees Facilitate Tacit Collusion? An Experimental Study, Eller College of Management Working Paper No. 1011-05.
Dugar, S., Sorensen, T., 2006, Hassle Costs, Price-Matching Guarantees and Price Competition: An Experiment. Review of Industrial Organization 28, 359-378.
Edlin, A. S., Emch, E., 1999, The Welfare Losses from Price-Matching Policies. Journal of Industrial Economics 47, 145-167.
Fatás, E., Mañez, J., 2004, Are Low-Price Compromises Collusion Guarantees? An Experimental Test of Price Matching Policies. Working Paper, Universidad de Valencia. Fatás, E., Georgantzís, N., Mañez, J., Sabater, G., 2005, Pro-Competitive Price Beating Guarantees: Experimental Evidence. Review of Industrial Organization 26, 115-136. Fischbacher, U., 1999, z-Tree - Zurich Toolbox for Readymade Economic Experiments - Experimenter's Manual. Working Paper Nr. 21, Institute for Empirical Research in Economics, University of Zurich.
Fouraker, L., Siegel, S., 1963, Bargaining Behavior. New York: McGraw Hill.
Hess, J., Gerstner, E., 1991, Price-Matching Policies: An Empirical Case. Managerial Decision Economics 12, 305-315.
Hviid, M., Shaffer, G., 1999, Hassle Costs: The Achilles’ Heel of Price-Matching Guarantees. Journal of Economics and Management Strategy 8, 489-521.
Jain, S., Srivastava, J., 2000, An Experimental and Theoretical Analysis of Price-Matching Refund Policies. Journal of Marketing Research 37, 351-362.
Liu, Q., 2006, Price Level, Price Variation, and Price-Matching Policy. unpublished manuscript.
Logan, J., Lutter, R.,1989, Guaranteed Lowest Prices: Do They Facilitate Collusion? Economics Letters 31, 182-192.
Mason, C., Phillips, O., Nowell, C., 1992, Duopoly Behavior in Asymmetric Markets: An Experimental Evaluation. The Review of Economics and Statistics 74, 662-670.
Millman, N., 1994, Price Wars Spreading to Once-Sacred Funeral Industry. Chicago Tribune, March 21.
Moorthy, S. and R. Winter, 2005, Price-Matching Guarantees. Forthcoming, RAND Journal of Economics.
Palfrey, T., Rosenthal, H., 1994, Repeated Play, Cooperation and Coordination: An Experimental Study. Review of Economic Studies 61, 545-565.
Png, I. P. L., Hirshleifer, D., 1987, Price Discrimination through Offers to Match Price. Journal of Business 60, 365-383.
Roth, A., Murnigham, J., 1978, Equilibrium Behavior and Repeated Play of the Prisoner's Dilemma. Journal of Mathematical Psychology 17, 189-198.
Salop, S., 1986, Practices that (Credibly) Facilitate Oligopoly Coordination. J. Stiglitz and F. Mathewson, eds., New Developments in the Analysis of Market Structure, Cambridge, MA: MIT Press, 265-290.
Schnitzer, M., 1994, Dynamic Duopoly with Best-Price Clauses. RAND Journal of Economics 25, 186-196.