Price-Matching Guarantees in Homogenous Product Market and Equilibrium Selection Problem

Download or read book Price-Matching Guarantees in Homogenous Product Market and Equilibrium Selection Problem written by Subhasish Dugar and published by . This book was released on 2006 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Price-matching guarantees have been alleged to sustain collusive prices in a homogenous product market. Theories in this literature also suggest that there exists multiple equilibria (i.e., a set of price equilibria between the competitive and the monopoly price) when all sellers adopt these guarantees in such a market. Theoretical prediction in this case fails to pin down the actual behavior of players a priori. This paper illustrates the essential role of controlled experiment in testing the collusive theory of price matching guarantees and thereby shedding light on the embedded equilibrium selection problem. In particular, this paper studies two highly stylized market models, obtains testable predictions and lays out the design of the controlled experiment. Results indicate that these guarantees facilitate collusion among sellers and thus solve the equilibrium selection problem considerably.