Promises to match or beat the competition: Evidence from retail tire prices

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Advances in Applied Microeconomics

ISSN: 0278-0984
Series editor(s): Professor Michael Baye, Professor John Maxwell

Subject Area: Economics

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Document Information:
Title:	Promises to match or beat the competition: Evidence from retail tire prices
Author(s):	Maria Arbatskaya, Morten Hviid, Greg Shaffer
Volume:	8 ISBN: 978-0-76230-576-6 eISBN: 978-1-84950-037-1
Citation:	Maria Arbatskaya, Morten Hviid, Greg Shaffer (2000), Promises to match or beat the competition: Evidence from retail tire prices, in (ed.) 8 (Advances in Applied Microeconomics, Volume 8), Emerald Group Publishing Limited, pp.123-138
DOI:	10.1016/S0278-0984(99)08006-2 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Article type:	Full length article
Abstract:	Given the widespread adoption of low-price guarantees and discussion of their anti-competitive effects in the theoretical literature, it is unfortunate that there is little empirical evidence available on the subject. This chapter analyzes the effects of low-price guarantees on advertised tire prices, based on P185/75R14 retail tire prices collected from U.S. Sunday newspapers. We find that although a tire retailer's own price-matching or price-beating guarantee has no significant effect on the retailer's advertised tire price, an increase in the percentage of firms in the market announcing low-price guarantees tends to raise the firm's advertised tire price. In particular, we find that the predicted tire prices are approximately $4 higher (about 10 percent of the average advertised price of a P185/75R14 tire) in markets in which all firms advertise an LPG when compared to markets without any LPGs.