Matching Own Prices, Rivals' Prices, or Both

Simon School Working Paper No. FR 08-24

ESRC Centre for Competition Policy Working Paper No. 08-26

32 Pages Posted: 8 Aug 2008

See all articles by Morten Hviid

Morten Hviid

University of East Anglia - Centre for Competition Policy (CCP); University of East Anglia (UEA) - Norwich Law School

Greg Shaffer

University of Rochester - Simon Business School

Date Written: July 31, 2008

Abstract

Many retailers promise that they will not be undersold by rivals (price-matching guarantees) and extend their promise to include their own future prices (most-favored-customer clauses). This is puzzling because the extant literature has shown that each promise independently has the potential to facilitate supracompetitive prices, and so one might think that the two promises are substitutes. In this paper, we consider why a firm might make both promises in the same guarantee, and show that price-matching guarantees and most-favored-customer clauses complement each other and can lead to higher prices than either one could have facilitated by itself.

Keywords: facilitating practices, low-price guarantees, antitrust policy

JEL Classification: L11, L13, L41

Suggested Citation

Hviid, Morten and Shaffer, Greg, Matching Own Prices, Rivals' Prices, or Both (July 31, 2008). Simon School Working Paper No. FR 08-24, ESRC Centre for Competition Policy Working Paper No. 08-26, Available at SSRN: https://ssrn.com/abstract=1210599 or http://dx.doi.org/10.2139/ssrn.1210599

Morten Hviid (Contact Author)

University of East Anglia - Centre for Competition Policy (CCP) ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

University of East Anglia (UEA) - Norwich Law School ( email )

Norwich NR4 7TJ, Norfolk
United Kingdom

Greg Shaffer

University of Rochester - Simon Business School ( email )

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