Matching Own Prices, Rivals' Prices, or Both
ESRC Centre for Competition Policy Working Paper No. 08-26
32 Pages Posted: 8 Aug 2008
Date Written: July 31, 2008
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: Suggested Citation