Price matching and platform pricing

Bottasso, Anna and Marocco, Paolo and Robbiano, Simone (2020): Price matching and platform pricing.

Abstract

In this study we investigate the effects of Price Matching Guarantees (PMGs) commercial policies on U.S. online consumer electronics daily prices. By applying a Diff-in-Diff identification strategy we find evidence in favor of price reductions occurring after the PMG policy is repealed. We further investigate if such effect is heterogeneous according to products characteristics, by exploiting User Generated Contents (UGCs, as products popularity and quality) and online search visibility measures (Google Search Rank). Estimates suggest that for high quality (visibility) products PMGs policies harms competition by keeping prices high, while for low quality (visibility) products, prices decrease during the policy validity period.

• Item Type: MPRA Paper
• Language: English
• Keywords: online platforms; price matching guarantees; platform pricing; user generated contents; policy evaluation; counterfactual evaluation
• Subjects: L - Industrial Organization > L0 - General > L00 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization ; Horizontal Anticompetitive Practices; L - Industrial Organization > L8 - Industry Studies: Services > L81 - Retail and Wholesale Trade ; e-Commerce

References

Arbatskaya, M., Hviid, M. and Shaffer, G. (2000), ‘Promises to match or beat the competition: Evidence from retail tire prices’, advances in applied microeconomics (advances in applied microeconomics, volume 8)’.

Arbatskaya, M., Hviid, M. and Shaffer, G. (2006), ‘On the use of low-price guarantees to discourage price cutting’, International Journal of Industrial Organization 24(6), 1139–1156.

Autor, D. H. (2003), ‘Outsourcing at will: The contribution of unjust dismissal doctrine to the growth of employment outsourcing’, Journal of labor economics 21(1), 1–42.

Baye, M. R. and Kovenock, D. (1994), ‘How to sell a pickup truck:‘beat-or pay’advertisements as facilitating devices’, International Journal of Industrial Organization 12(1), 21–33.

Belton, T. M. (1987), ‘A model of duopoly and meeting or beating competition’, International Journal of Industrial Organization 5(4), 399–417.

Byrne, D. P. and De Roos, N. (2019), ‘Learning to coordinate: A study in retail gasoline’, American Economic Review 109(2), 591–619.

Cabral, L., Dürr, N., Schober, D. and Woll, O. (2018), Price matching guarantees and collusion: Theory and evidence from germany, Technical report, Working Paper, New York University.

Cameron, A. C. and Miller, D. L. (2015), ‘A practitioner’s guide to cluster-robust inference’, Journal of human resources 50(2), 317–372.

Chen, Z. (1995), ‘How low is a guaranteed-lowest-price?’, Canadian Journal of Economics pp. 683–701.

Chilet, J. A. (2018), ‘Gradually rebuilding a relationship: The emergence of collusion in retail pharmacies in chile’.

Chung, H. S., Kim, M. et al. (2016), ‘Low-price guarantees and pricing behavior: evidence from hypermarkets in korea’, Economics Bulletin 36(2), 1223–1229.

Coad, A. (2009), ‘On the distribution of product price and quality’, Journal of Evolutionary Economics 19(4), 589–604.

Constantinou, E. and Bernhardt, D. (2018), ‘The price-matching dilemma’, International Journal of Industrial Organization 59, 97–113.

Corts, K. S. (1997), ‘On the competitive effects of price-matching policies’, International Journal of Industrial Organization 15(3), 283–299.

Doyle, C. (1988), ‘Different selling strategies in bertrand oligopoly’, Economics Letters 28(4), 387–390.

Edlin, A. S. (1997), ‘Do guaranteed-low-price policies guarantee high prices, and can antitrust rise to the challenge?’, Harvard Law Review pp. 528–575.

Ellison, G. and Ellison, S. F. (2009), ‘Search, obfuscation, and price elasticities on the internet’, Econometrica 77(2), 427–452.

Gorodnichenko, Y. and Talavera, O. (2017), ‘Price setting in online markets: Basic facts, international comparisons, and cross-border integration’, American Economic Review 107(1), 249–82.

Haruvy, E. and Leszczyc, P. T. P. (2016), ‘Measuring the impact of price guarantees on bidding in consumer online auctions’, Journal of Retailing 92(1), 96–108.

Hay, G. A. (1981), ‘Oligopoly shared monopoly and antitrust law’, Cornell L. Rev. 67, 439.

Hess, J. D. and Gerstner, E. (1991), ‘Price-matching policies: An empirical case’, Managerial and Decision Economics 12(4), 305–315.

Hviid, M. and Shaffer, G. (1999), ‘Hassle costs: the achilles’ heel of price-matching guarantees’, Journal of Economics & Management Strategy 8(4), 489–521.

Hviid, M. and Shaffer, G. (2010), ‘Matching own prices, rivals’prices or both?’, The Journal of Industrial Economics 58(3), 479–506.

Jain, S. and Srivastava, J. (2000), ‘An experimental and theoretical analysis of pricematching refund policies’, Journal of Marketing Research 37(3), 351–362.

Logan, J. W. and Lutter, R. W. (1989), ‘Guaranteed lowest prices: do they facilitate collusion?’, Economics Letters 31(2), 189–192.

Lu, Y. and Wright, J. (2010), ‘Tacit collusion with price-matching punishments’, International Journal of Industrial Organization 28(3), 298–306.

Mago, S. D. and Pate, J. G. (2009), ‘An experimental examination of competitor-based price matching guarantees’, Journal of Economic Behavior & Organization 70(1- 2), 342–360.

Moorthy, S. and Winter, R. A. (2006), ‘Price-matching guarantees’, The RAND Journal of Economics 37(2), 449–465.

Moorthy, S. and Zhang, X. (2006), ‘Price matching by vertically differentiated retailers: Theory and evidence’, Journal of Marketing Research 43(2), 156–167.

Nalca, A., Boyaci, T. and Ray, S. (2010), ‘Competitive price-matching guarantees under imperfect store availability’, Quantitative Marketing and Economics 8(3), 275–300.

OECD (2019), An Introduction to Online Platforms and Their Role in the Digital Transformation. URL: https://www.oecd-ilibrary.org/content/publication/53e5f593-en

Png, I. P. and Hirshleifer, D. (1987), ‘Price discrimination through offers to match price’, Journal of Business pp. 365–383.

Pollak, A. et al. (2017), Do price-matching guarantees with markups facilitate tacit collusion? theory and experiment, Technical report.

Salop, S. C. (1986), Practices that (credibly) facilitate oligopoly co-ordination, in ‘New developments in the analysis of market structure’, Springer, pp. 265–294.

Stallkamp, M. and Schotter, A. P. (2019), ‘Platforms without borders? the international strategies of digital platform firms’, Global Strategy Journal .

Wilhelm, S. (2016), Price-matching strategies in the german gasoline retail market, Technical report, Working Paper, Goethe Universität Frankfurt, erhältlich unter: http://ssrn . . . .

Wu, C., Wang, K. and Zhu, T. (2015), ‘Can price matching defeat showrooming’, University of California, Haas School of Business, Berkeley .

Zhuo, R. (2017), ‘Do low-price guarantees guarantee low prices? evidence from competition between amazon and big-box stores’, The Journal of Industrial Economics 65(4), 719–738.