Never Knowingly Undersold – Do Price Match Guarantees Result in Lower Prices?

Abstract

Price Match Guarantees (PMGs) are commitments by retailers to match or beat competitors’ prices, commonly employed across various industries. Whilst these guarantees supposedly benefit consumers by ensuring lower prices, economic theory presents mixed predictions regarding their actual impact. Collusion and price discrimination theories suggest that PMGs may lead to higher prices, harming consumers, whereas low-price signalling theories argue that PMGs enhance consumer welfare. This study empirically examines the effects of removing a PMG policy at a leading UK retailer. The findings reveal that prices increased following the policy’s removal, offering support for the pro-competitive effects of PMGs. Notably, the price increases occurred not at the retailer that eliminated the guarantee but amongst its competitors, highlighting the broader market implications of such policies. These results contribute to the ongoing debate on the consumer and market impacts of PMGs, providing novel insights into their competitive dynamics

Rhys J. Williams

PhD Candidate

Rhys is a doctoral candidate in Economics at the University of Cambridge. His research interests are in applied microeconomics, with a focus on competition and health questions.