Matching Own Prices, Rivals' Prices, or Both

Morten Hviid and Greg Shaffer ()
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Greg Shaffer: ESRC Centre for Competition Policy, University of East Anglia, and Simon School of Business, University of Rochester

No 08-26, Working Papers from Centre for Competition Policy, University of East Anglia

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.

Keywords: facilitating practices; low-price guarantees; antitrust policy (search for similar items in EconPapers)
JEL-codes: L11 L13 L41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind, nep-mic and nep-mkt
Date: 2008-07
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