Review of Industrial Organization

, Volume 30, Issue 2, pp 107–119

Price-Matching Guarantees and Equilibrium Selection in a Homogenous Product Market: An Experimental Study

Article

Abstract

Price-matching guarantees have been alleged to sustain collusive prices in a homogenous product market. Theories in this literature also suggest that there exist multiple equilibria (i.e., a set of price equilibria between the competitive and the monopoly price) when all sellers adopt these guarantees in such a market. Theoretical prediction in this case fails to pin down the actual behavior of players a priori. This paper illustrates the essential role of controlled experiment in testing the collusive theory of price-matching guarantees and thereby shedding light on the embedded equilibrium selection problem. In particular, this paper studies two highly stylized market models, obtains testable predictions, and lays out the design of the controlled experiment. Results indicate that these guarantees facilitate collusion among sellers and thus solve the equilibrium selection problem considerably.

Keywords

Price-matching guarantees Collusion Homogenous product market Equilibrium selection Experiment 

JEL Classifications

L11 L12 C91 

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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of ArizonaTucsonUSA

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