Do Low†Price Guarantees Guarantee Low Prices? Evidence from Competition between Amazon and Big†Box Stores

Ran Zhuo

Journal of Industrial Economics, 2017, vol. 65, issue 4, 719-738

Abstract: It has long been understood in theory that price†match guarantees can be anticompetitive, but to date, scant empirical evidence is available outside of some narrow markets. This paper broadens the scope of empirical analysis, studying a wide range of products sold on a national online market. Using an algorithm that extracts data from charts, I obtain a novel source of data from online price trackers. I examine prices of goods sold on Amazon before and after two big†box stores (Target and Best Buy) announced a guarantee to match Amazon's prices. Employing both difference†in†difference and regression†discontinuity approaches, I robustly estimate a positive causal effect of six percentage points. The effect was heterogeneous, with larger price increases for initially lower†priced items. My results support anticompetitive theories which predict price increases for Amazon, a firm that did not adopt the guarantee, and are consistent with plausible mechanisms for the heterogeneous impact.

Date: 2017
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