Price Matching Guarantees And Collusion
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Price Matching Guarantees And Collusion
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Author : Luís M. B. Cabral
language : en
Publisher:
Release Date : 2021
Price Matching Guarantees And Collusion written by Luís M. B. Cabral and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with Consumer behavior categories.
On May 27, 2015, the Shell network of gas stations in Germany introduced a Price Matching Guarantee (PMG) available to its card-carrying members. In the ensuing weeks, a series of attempts at tacit collusion took place, typically with stations increasing prices at around 12 noon by 3 cents. In this paper, we argue that the juxtaposition of these two events is not a mere coincidence. We first present a theoretical model to argue that a PMG can be a collusion enacting practice. We then test various predictions of our theoretical model. Our source of identification is geographical variation in the presence of Shell stations (the chain that enacted the PMG) as well consumer demographics. Our empirical tests are consistent with the theoretical predictions, showing effects that are both statistically and economically significant.
Are Low Prices Compromises Collusion Guarantees An Experimental Analysis Of Price Matching Policies
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Author : Enrique Fatas
language : en
Publisher:
Release Date : 2002
Are Low Prices Compromises Collusion Guarantees An Experimental Analysis Of Price Matching Policies written by Enrique Fatas and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with categories.
In this paper we experimentally test the ability of Price-Matching Guarantees (PMG) to rise prices above the competitive level. We implement three different treatments of symmetric duopolies to check the effect of PMG both as a market institution and as a business strategy. In the absence of any low-price guarantee, prices get close to the Bertrand-Nash equilibrium although in the 50 rounds of the experiment no full convergence is obtained. The existence of PMG as an institution in a market where firms decide only about prices results in a clear collusive outcome as all markets quickly and fully converge to the collusive prediction. If we allow subjects to decide whether they adopt price matching or not we observe that almost all subjects decide to adopt PMG; prices significantly increases over the first treatment observed prices and are very close to the collusive ones.
Tacit Collusion With Price Matching Punishments
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Author : Yuanzhu Lu
language : en
Publisher:
Release Date : 2005
Tacit Collusion With Price Matching Punishments written by Yuanzhu Lu and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with categories.
We re-examine tacit collusion under a simple punishment rule in which firms match any lower price by their rivals, but otherwise leave their prices unchanged. We provide conditions under which this simple rule sustains collusion and is credible. Provided competition is imperfect, collusion can always be sustained, but never to the point of monopoly. Interestingly, the standard ambiguous relationship between product substitutability and tacit collusion is unambiguous under this new setting. The relationship to existing theories of price matching guarantees, kinked demand curves, and continuous reaction-function equilibria are explained.
Hassle Costs Price Matching Guarantees And Price Competition
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Author : Subhasish Dugar
language : en
Publisher:
Release Date : 2005
Hassle Costs Price Matching Guarantees And Price Competition written by Subhasish Dugar and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2005 with categories.
In this study, we experimentally investigate whether the collusion-facilitating nature of price-matching guarantees survives the reasonable modification of hassle costs incurred by buyers to enact these guarantees. Hviid and Shaffer [1999] (HS) argue that the presence of an arbitrarily small number of positive hassle costs buyers undermines incentives for collusion in symmetric markets. To evaluate the impact of hassle costs, we develop four stylized one-shot price competition models that have sharp testable predictions. While the first model directly captures the implications of HS, the last three models deal with the theoretical analysis of hassle costs in symmetric markets by introducing varying proportions of positive and zero hassle costs buyers, previously unexplored in the literature. Although theory predicts that the competitive price should emerge in equilibrium in all four models, we find significant price differences in the experiment.
Price Matching Guarantees In Homogenous Product Market And Equilibrium Selection Problem
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Author : Subhasish Dugar
language : en
Publisher:
Release Date : 2006
Price Matching Guarantees In Homogenous Product Market And Equilibrium Selection Problem written by Subhasish Dugar and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.
Price-matching guarantees have been alleged to sustain collusive prices in a homogenous product market. Theories in this literature also suggest that there exists multiple equilibria (i.e., a set of price equilibria between the competitive and the monopoly price) when all sellers adopt these guarantees in such a market. Theoretical prediction in this case fails to pin down the actual behavior of players a priori. This paper illustrates the essential role of controlled experiment in testing the collusive theory of price matching guarantees and thereby shedding light on the embedded equilibrium selection problem. In particular, this paper studies two highly stylized market models, obtains testable predictions and lays out the design of the controlled experiment. Results indicate that these guarantees facilitate collusion among sellers and thus solve the equilibrium selection problem considerably.
An Experimental Examination Of Competitor Based Price Matching Guarantees
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Author : Shakun D. Mago
language : en
Publisher:
Release Date : 2006
An Experimental Examination Of Competitor Based Price Matching Guarantees written by Shakun D. Mago and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.
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.
Price Matching Guarantees
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Author : Sridhar Moorthy
language : en
Publisher:
Release Date : 2013
Price Matching Guarantees written by Sridhar Moorthy and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.
Are price-matching guarantees anticompetitive? This paper examines the incentives for price-matching guarantees in markets where information about prices is costly. Under some conditions the conventional explanation of price-matching announcements as facilitating collusion finds support, and is even strengthened. But our model provides an additional explanation for the practice. A price-matching guarantee may be a credible and easily understood means of communicating to uninformed consumers that a firm is low-priced. The credibility of the signal to uninformed consumers is assured by the behaviour of informed consumers. We contrast the testable implications of our model with those of the anticompetitive theories and discuss supportive evidence from an illustrative sample of retailers.
Are Low Price Compromises Collusion Guarantees
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Author : Enrique Fatás
language : en
Publisher:
Release Date : 2002
Are Low Price Compromises Collusion Guarantees written by Enrique Fatás and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with categories.
Competitive Price Matching Guarantees
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Author : Arcan Nalca
language : en
Publisher:
Release Date : 2009
Competitive Price Matching Guarantees written by Arcan Nalca and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.
The Effects Of Price Matching Guarantees On Prices
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Author : Subhasish Dugar
language : en
Publisher:
Release Date : 2006
The Effects Of Price Matching Guarantees On Prices written by Subhasish Dugar and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.
This study reports experiments on two competing theories of price-matching guarantees (PMGs). The dominant view (Salop [1986]) in the literature suggests that PMGs can alter pricing incentives of firms and sustain anti-competitive outcome in the market. However, a recent theoretical extension (Hviid and Shaffer [1999]) argues that this anti-competitive outcome can be undermined if buyers incur costs in invoking these guarantees. Therefore, it is natural to wonder how these conclusions stand up empirically. In order to provide empirical evidence on the impact of PMGs on prices, we study a variety of stylized market models that capture the essence of the two theories, obtain testable predictions and lay out the design of the controlled experiment. Results indicate that in the absence of any hassle costs, PMGs can sustain the predicted collusive outcome. On the other hand, the presence of buyers who incur positive hassle costs significantly mitigates, though not fully as theory predicts, the price-facilitating power of PMGs. Our findings indicate that policy makers should heed the potentially anti-competitive effects of PMG related advertisements on prices.