1. Price Match Guarantee Research Group
Experimental Economics
Dr. Leonard
3/6/15
1) The Research Problem
Many firms in today’s economic climate choose to undertake price matching
strategies in order to increase competitiveness relative to other firms. Intuitively, this
would seem to benefit the marketplace in general, since it increases the overall level of
competition and creates an environment with more firms offering lower prices. However,
some economists have proposed that this actually decreases competitiveness and raises
prices--operating as implicit price collusion--because it removes or reduces incentives for
firms to compete on pricing at all.
2) Theoretical Framework
This experiment mainly deals with market structures and the pricing strategies
that result from those structures. Firms maximize profit when their Marginal Revenue is
equal to their marginal cost; in a normal market, the model predicts that firms are
incentivized to undercut each other to gain market share until P=MC, which is a staple of
Perfect Competition. Price Match Guarantees (PMGs) are designed to enhance
competition by forcing firms to adopt the lower pricing of another firm in order to not
lose market share.
However, our expectation is that PMGs will inhibit this process and keep prices
above the marginal cost, or in other words limit perfect competition in the form of
implicit collusion.
3) Purpose

2. a) The Purpose of the experiment is to show that Price Match Guarantees stifle
competition and cause implicit collusion. Also, the purpose is to show that firms
would prefer to operate under markets that have Price Match Guarantees than
markets with no such pricing ability.
4) Methodology
a) The basic set up design for our experiment will be a twist on the classic pit market
experiment. First, we will essentially mirror the pit market experiment until we
reach an approximate equilibrium. Next, we will continue that experiment, first
allowing an option for price matching guarantees and then mandating that each
group will offer a price match guarantee. In order to control for the amount of
information available, we may need to change round 1 slightly by informing the
participants of the lowest price.