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Matching Own Prices, Rivals' Prices, or Both

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Author Info
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)

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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.

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Publisher Info
Paper provided by Centre for Competition Policy, University of East Anglia in its series Working Papers with number 08-26.

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Length: 31 pages
Date of creation: Jul 2008
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Handle: RePEc:ccp:wpaper:wp08-26

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Related research
Keywords: facilitating practices; low-price guarantees; antitrust policy;

Find related papers by 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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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June. [Downloadable!] (restricted)
  2. Zhiqi Chen, 1995. "How Low Is a Guaranteed-Lowest-Price?," Canadian Journal of Economics, Canadian Economics Association, vol. 28(3), pages 683-701, August. [Downloadable!] (restricted)
    Other versions:
  3. Monika Schnitzer, 1994. "Dynamic Duopoly with Best-Price Clauses," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 186-196, Spring. [Downloadable!] (restricted)
  4. Corts, Kenneth S., 1997. "On the competitive effects of price-matching policies," International Journal of Industrial Organization, Elsevier, vol. 15(3), pages 283-299, May. [Downloadable!] (restricted)
  5. Arbatskaya, Maria & Hviid, Morten & Shaffer, Greg, 2006. "On the use of low-price guarantees to discourage price cutting," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1139-1156, November. [Downloadable!] (restricted)
  6. Neilson, William S. & Winter, Harold, 1992. "Unilateral most-favored-customer pricing : A comparison with Stackelberg," Economics Letters, Elsevier, vol. 38(2), pages 229-232, February. [Downloadable!] (restricted)
  7. Pinar Akman & Morten Hviid, 2005. "A Most-Favoured-Customer Guarantee with a Twist," Working Papers 05-8, Centre for Competition Policy, University of East Anglia. [Downloadable!]
  8. Aaron S. Edlin and Eric R. Emch., 1997. "The Welfare Losses from Price Matching Policies," Economics Working Papers 97-257, University of California at Berkeley. [Downloadable!]
    Other versions:
  9. Sridhar Moorthy & Ralph A.Winter, 2006. "Price-Matching Guarantees," RAND Journal of Economics, The RAND Corporation, vol. 37(2), pages 449-465, Summer.
    Other versions:
  10. Arbatskaya, Maria & Hviid, Morten & Shaffer, Greg, 2004. "On the Incidence and Variety of Low-Price Guarantees," Journal of Law & Economics, University of Chicago Press, vol. 47(1), pages 307-32, April.
    Other versions:
  11. Thomas E. Cooper, 1986. "Most-Favored-Customer Pricing and Tacit Collusion," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 377-388, Autumn. [Downloadable!] (restricted)
  12. Aaron Edlin, 1995. "Do Guaranteed-Low-Price Policies Guarantee High Prices, and Can Antitrust Rise to the Challenge," Berkeley Olin Program in Law & Economics, Working Paper Series 1153, Berkeley Olin Program in Law & Economics. [Downloadable!]
  13. Morten Hviid & Greg Shaffer, 1999. "Hassle Costs: The Achilles' Heel of Price-Matching Guarantees," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 8(4), pages 489-521, December. [Downloadable!] (restricted)
  14. Neilson, William S. & Winter, Harold, 1994. "Enhancing bargaining power with most-favored-customer pricing," Economics Letters, Elsevier, vol. 44(1-2), pages 61-66. [Downloadable!] (restricted)
  15. Png, I P L & Hirshleifer, D, 1987. "Price Discrimination through Offers to Match Price," Journal of Business, University of Chicago Press, vol. 60(3), pages 365-83, July. [Downloadable!] (restricted)
  16. William S. Neilson & Harold Winter, 1993. "Bilateral Most-Favored-Customer Pricing and Collusion," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 147-155, Spring. [Downloadable!] (restricted)
  17. Logan, John W. & Lutter, Randall W., 1989. "Guaranteed lowest prices: do they facilitate collusion?," Economics Letters, Elsevier, vol. 31(2), pages 189-192, December. [Downloadable!] (restricted)
  18. Arbatskaya, Maria, 2001. "Can low-price guarantees deter entry?," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1387-1406, November. [Downloadable!] (restricted)
  19. Friedman, James, 1993. "Oligopoly theory," Handbook of Mathematical Economics, in: K. J. Arrow & M.D. Intriligator (ed.), Handbook of Mathematical Economics, edition 4, volume 2, chapter 11, pages 491-534 Elsevier. [Downloadable!] (restricted)
  20. 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. [Downloadable!] (restricted)
  21. Juan A. Mañez, 2006. "Unbeatable Value Low-Price Guarantee: Collusive Mechanism or Advertising Strategy?," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 15(1), pages 143-166, 03. [Downloadable!] (restricted)
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