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

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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.

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  • 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
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    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

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