On the use of low-price guarantees to discourage price cutting

Shaffer, Greg, Arbatskaya, Maria and Hviid, Morten (2006) On the use of low-price guarantees to discourage price cutting. International Journal of Industrial Organization, 24 (6). pp. 1139-1156. ISSN 0167-7187

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Abstract

This paper formulates a novel test to assess whether, and to what extent, firms might be using low-price guarantees to discourage their rivals from cutting prices. The test is based on a comparison of paired observations of advertised prices that are set by competing firms at the same point in time on similar items, where one price is set by a firm that has a low-price guarantee and the other by a firm that does not have a low-price guarantee. Using data on retail tire prices, we find that the majority of paired observations involving firms that have price-matching guarantees are consistent with what one would expect if firms were using them to discourage price cutting, whereas the majority of paired observations involving firms that have price-beating guarantees are not. This suggests that price-matching and price-beating guarantees may be serving different purposes. The evidence also suggests that guarantees that apply to advertised prices only may be serving different purposes than guarantees that apply to both advertised and selling prices. © 2006.

Item Type: Article
Uncontrolled Keywords: collusion,facilitating practices,price-matching policies
Faculty \ School: Faculty of Social Sciences > Norwich Business School
Faculty of Social Sciences > School of Law
University of East Anglia > Faculty of Social Sciences > Research Groups > Competition Law
University of East Anglia > Faculty of Social Sciences > Research Groups > Business Regulation
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Depositing User: Nicola Secker
Date Deposited: 01 Apr 2011 09:04
Last Modified: 25 Jul 2018 06:19
URI: https://ueaeprints.uea.ac.uk/id/eprint/27823
DOI: 10.1016/j.ijindorg.2006.04.001

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