Review of Industrial Organization

, Volume 28, Issue 4, pp 359–378

Hassle Costs, Price-Matching Guarantees and Price Competition: An Experiment

Article

Abstract

We experimentally investigate whether the collusion-facilitating nature of price-matching guarantees survives the introduction of hassle costs incurred by buyers to enforce these guarantees. The presence of an arbitrarily small number of positive hassle costs buyers may completely undermine incentives for collusion. To evaluate this possibility, we develop four one-shot price competition models that test the hassle cost argument by varying proportions of positive and zero hassle cost buyers present in the market. Although the theory predicts that the competitive price should emerge in equilibrium in all four models, we experimentally find significant price differences.

Keywords

Experiment hassle costs price-matching guarantees 

JEL classifications

L11 L12 C91 

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Copyright information

© Springer 2006

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of ArizonaTucsonUSA

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