Guaranteed lowest prices: do they facilitate collusion?

Logan, John; Lutter, Randall

doi:10.1016/0165-1765(89)90197-3

Cited by 61 publications

(39 citation statements)

References 4 publications

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“…However, there is no consensus on whether PMG is anti-or procompetitive. Early researchers argue that PMG can facilitate tacit collusion among competing retailers and is therefore anticompetitive (see, e.g., Hay 1982, Salop 1986, Logan and Lutter 1989, Baye and Kovenock 1994, Chen 1995, Zhang 1995. When retailers are committed to match lower prices charged by competitors in the market, no one has the incentive to undercut the rivals.…”

Section: Literature Reviewmentioning

confidence: 99%

Price-Matching Guarantees with Endogenous Consumer Search

2017

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Abstract. Price-matching guarantees (PMGs) are offered in a wide array of product categories in retail markets. PMGs offer consumers the assurance that, should they find a lower price elsewhere within a specified period after purchase the retailer will match that price and refund the price difference. The goal of this study is to explain the following stylized facts: (1) many retailers that operate both online and offline implement PMG offline but not online; (2) the practices of PMG vary considerably across retail categories; and (3) some retailers launch specialized websites that automatically check competitors' prices for consumers after purchase. To this end, we build a sequential search model that endogenizes consumers' pre-and postpurchase search decisions. We find that PMG expands retail demand but intensifies price competition on two dimensions. PMG drives retailers to offer deeper promotions because it increases the overall extent of consumer search, which we call the primary competition-intensifying effect. We also find a new secondary competition-intensifying effect, which results from endogenous consumer search. As deeper promotions incentivize consumers to continue price search, retailers are forced to lower the "regular" price to deter consumers from searching. The strength of the secondary competition-intensifying effect increases with the ratio of product valuation to search cost, which explains the variation in PMG practices online versus offline and across retail categories. We show that an asymmetric equilibrium exists such that one retailer offers PMG while the other does not. In this equilibrium, the PMG retailer may benefit from launching a price check website to facilitate consumers' postpurchase search.History: Accepted by J. Miguel Villas-Boas, marketing.

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Section: Literature Reviewmentioning

confidence: 99%

Price-Matching Guarantees with Endogenous Consumer Search

2017

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“…It is typically assumed that the contract of a …rm consists of a posted price and a policy which maps the competitors'posted prices into prices. The actual price paid by a consumer for a …rm's product is a function of the …rm's posted price and the …rm's policy evaluated at the others' posted prices, see, for example, Salop (1986), Png and Hirshleifer (1987), Belton (1987), Logan and Lutter (1989), Baye and Kovenock (1994), Chen (1995) and Zhang (1995). In other words, certain parts of the contracts are contractible, i.e.…”

Section: Literature Reviewmentioning

confidence: 99%

Contractible Contracts in Common Agency Problems

Szentes

2014

The Review of Economic Studies

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This paper analyzes contractual situations between many principals and many agents. The agents have private information, and the principals take actions. Principals have the ability to contract not only on the reports of the agents but also on the contracts o¤ered by other principals. Contracts are required to be representable in a formal language. The main result of the paper is a characterization of the allocations that can be implemented as equilibria in our contracting game. When we restrict attention to exclusive-contracting environment, our characterization result implies that principals can collude to implement the monopolist outcome. Finally, in general, equilibrium contracts turn out to be incomplete. That is, a contract will restrict the action space of a principal but will not necessarily determine a single action.

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“…by using Logan and Lutter (1989) as a benchmark model. Logan and Lutter (1989), in their interesting paper, argued that the unique equilibrium in the symmetric two stage G.L.P. game is for both firms to adopt G.L.P.…”

Section: Introductionmentioning

confidence: 99%

“…include Holt and Scheffman (1987), Belton (1987) and Logan and Lutter (1989). Holt and Scheffman (1987) considered several facilitating practices jointly, namely G.L.P., Most-Favoured-Customer Clauses (M.F.C.…”

Section: Introductionmentioning

confidence: 99%