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

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.

Citation

Arbatskaya, M., Hviid, M. and Shaffer, G. (2000), "Promises to match or beat the competition: Evidence from retail tire prices", Advances in Applied Microeconomics (Advances in Applied Microeconomics, Vol. 8), Emerald Group Publishing Limited, Leeds, pp. 123-138. https://doi.org/10.1016/S0278-0984(99)08006-2