Pro-competitive price beating guarantees: experimental evidence

Fatas, E., Georgantzis, N., Mañez, J. A. and Sabater-Grande, G. (2005) Pro-competitive price beating guarantees: experimental evidence. Review of Industrial Organization, 26 (1). pp. 115-136. ISSN 0889-938X doi: 10.1007/s11151-004-6614-2

Abstract/Summary

We report experimental results on duopoly pricing with and without price beating guarantees (PBG). In two control treatments, price beating is either imposed as an industry-wide rule or offered as a business strategy. Our major finding is that when price beating guarantees are imposed as a rule or offered as an option, effective prices are equal to or lower than those in a baseline treatment in which price beating is forbidden. Also, when price beating is treated as a business strategy, less than 50% of subjects adopted the guarantee, suggesting that, subjects realize the pro-competitive effects of the guarantee.