Are Low Prices Compromises Collusion Guarantees? An Experimental Analysis of Price Matching Policies
LINEEX Working Paper No. 22/01
30 Pages Posted: 14 Sep 2001
Date Written: June 4, 2001
In this paper we experimentally test the ability of Price-Matching Guarantees (PMG) to rise prices above the competitive level. We implement three different treatments of symmetric duopolies to check the effect of PMG both as a market institution and as a business strategy. In the absence of any low-price guarantee, prices get close to the Bertrand-Nash equilibrium although in the 50 rounds of the experiment no full convergence is obtained. The existence of PMG as an institution in a market where firms decide only about prices results in a clear collusive outcome as all markets quickly and fully converge to the collusive prediction. If we allow subjects to decide whether they adopt price matching or not we observe that almost all subjects decide to adopt PMG; prices significantly increases over the first treatment observed prices and are very close to the collusive ones.
Keywords: price matching guarantees, experimental economics
JEL Classification: C9, L11
Suggested Citation: Suggested Citation