Rev Ind Organ (2007) 30:107–119
Price-Matching Guarantees and Equilibrium Selection
in a Homogenous Product Market: An Experimental
Published online: 17 April 2007
© Springer Science+Business Media B.V. 2007
Abstract Price-matching guarantees have been alleged to sustain collusive prices
in a homogenous product market. Theories in this literature also suggest that there
exist 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. Theoret-
ical prediction in this case fails to pin down the actual behavior of players apriori.
This paper illustrates the essential role of controlled experiment in testing the collu-
sive 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.
Keywords Price-matching guarantees · Collusion · Homogenous product market ·
Equilibrium selection · Experiment.
JEL classiﬁcations: L11 · L12 · C91
I am grateful to Jim Cox, Martin Dufwenberg, Haimanti Bhattacharya, and the editor of this journal and
the two referees for their suggestions. I thank seminar participants at the University of Arizona and North
American Economic Science Association meeting at Tucson, 2003 for their helpful comments. A research
grant from ESL, University of Arizona, for this project is gratefully acknowledged. I am solely
responsible for any remaining errors and omissions.
S. Dugar (
Department of Economics, University of Arizona, Tucson, AZ 85721, USA