| Summary: | Offers by retailers to match or beat a competitor's lower price are ubiquitous in both consumer and industrial markets. The conventional understanding of these practices is that such firms are attempting to be as competitive as possible by selling at the lowest price in the market. Numerous game theoretic models have shown however that, on the contrary, low price guarantees may be anti-competitive devices which facilitate cartel pricing. Knowing that any attempts to undercut will be instantaneously matched, sellers have no incentive to compete on price. This research project is the first, to my knowledge, that empirically examines the role of low price guarantees in markets with low search costs.
This dissertation employs a number of tests to explore areas of price guarantee behaviour that have yet to be examined in the published literature, such as price position, seller service quality and price dispersion. The data is collected from a UK price comparison engine and comprises a cross-section of 4564 individual prices for a total of 423 models of High Definition TV. The main result of this analysis is that price guarantee firms are found to be amongst the lowest priced in the market. It is concluded that lower search costs discipline the extent to which price guarantees can be used for anti-competitive purposes.
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