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Unraveling the spreading pattern of collusively effective competition clauses

Michael Trost

No 01-2022, Hohenheim Discussion Papers in Business, Economics and Social Sciences from University of Hohenheim, Faculty of Business, Economics and Social Sciences

Abstract: Meanwhile, the Industrial Organization literature gives several reasons why retailers adopt competition clauses (CCs) such as price matching or price beating guarantees. The motivations underlying the CCs might affect their forms and spread. In this paper, we unravel the spreading pattern of CCs in markets where they are used as a device to facilitate tacit collusion. It turns out that in homogeneous markets with capacity-constrained retailers, the retailers with the largest capacities are most inclined to adopt CCs. Our finding is in line with results of earlier studies on the formation of price leadership, which suggest that the retailers with the largest capacities take on the leadership position. On the other side, we find that in some market instances, retailers have to resort to CCs of non-conventional forms (i.e., of forms uncommon in real commercial life) to induce the most robust collusion. However, it turns out that this peculiar finding can be resolved for markets with additional characteristics. For example, if there exist market dominant retailers or the residual market demand is specified by efficient rationing, the most resilient collusion can also be enforced by CCs of conventional forms.

Keywords: Wettbewerbsverhalten; competition clause; anti-competitive practice; tacit collusion; market dominance; price-matching guarantee; price-beating guarantee (search for similar items in EconPapers)
JEL-codes: L11 L13 L41 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-com, nep-ind and nep-reg
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