Unbeatable value low-price guarantee:: Collusive mechanism or advertising strategy?

This paper investigates the effects of a low-price guarantee (price-beating guarantee) on the patterns of price setting of three supermarkets using microlevel price data. Following recent theoretical developments, the paper analyzes the ability of low-price guarantees to sustain anticompetitive prices. My empirical analysis suggests instead that this low-price guarantee may serve as an advertising device to signal low prices. The supermarket offering the lowprice guarantee, aware of its price advantage in a subset of products, uses it to signal low prices to induce consumers to switch supermarkets.