Price Matching Guarantees and Collusion: Theory and Evidence from Germany

Luis Cabral, Niklas Duerr, Dominik Schober and Oliver Woll

No 15823, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: 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.

Date: 2021-02
New Economics Papers: this item is included in nep-com
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