Unbeatable Value Low-Price Guarantee: Collusive Mechanism or Advertising Strategy?

24 Pages Posted: 13 Apr 2006

See all articles by J. A. Máñez

J. A. Máñez

University of Valencia - Faculty of Economics

Abstract

This paper investigates the effects of a low-price guarantee (price-beating guarantee) on the patterns of price setting of three supermarkets using micro-level price data. Following recent theoretical developments, the paper analyzes the ability of low-price guarantees to sustain anticompetitive prices. My empirical analysis suggests instead that this low-price guarantee may serve as an advertising device to signal low prices. The supermarket offering the low-price guarantee, aware of its price advantage in a subset of products, uses it to signal low prices to induce consumers to switch supermarkets.

Suggested Citation

Máñez-Castillejo, Juan A., Unbeatable Value Low-Price Guarantee: Collusive Mechanism or Advertising Strategy?. Journal of Economics & Management Strategy, Vol. 15, No. 1, pp. 143-166, March 2006. Available at SSRN: https://ssrn.com/abstract=874123 or http://dx.doi.org/10.1111/j.1530-9134.2006.00095.x

Juan A. Máñez-Castillejo (Contact Author)

University of Valencia - Faculty of Economics ( email )

Valencia, E-46022
Spain

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