Economics Upside-Down: Low-Price Guarantees as Mechanisms for Facilitating Tacit Collusion

Abstract

LPGs provide a particularly potent instrument for implementing tacit collusion and offer little offsetting economic benefit.In light of this analysis, this Comment explains why courts, scholars, and antitrust enforcement officials should scrutinize the use of LPGs to ensure that they are not utilized for collusive purposes.The Comment then evaluates the possibility of prosecuting attempts to facilitate tacit collusion via LPGs under current antitrust laws.Finally, the Comment concludes by calling on legislators, regulators, and courts to modify and clarify existing antitrust laws to correct defects in applying existing statutory prohibitions on collusion to cases involving LPGs. I. LOW-PRICE GUARANTEES AND THE CONSUMER RETAILING MARKETa A. Definition of a Low-Price GuaranteeFor the purposes of this Comment, a low-price guarantee is defined as a promise by a firm to refund to a customer an amount in excess of 100% of the difference between the firm's price and the prices charged by the firm's competitors.As a result, policies that merely guarantee that a firm's prices are the lowest available, also known as "meeting-the-competition clauses," 4 are not considered LPGs in the analysis which follows.While such guaranteed lowest price policies might have anticompetitive effects, 5 they are less effective at facilitating tacit collusion than policies which refund more than 100% of the price difference. 6 Furthermore, some firms offer "modified" LPGs under which they offer to match any competitor's price and will give any customer providing evidence of a lower price a non-cash premium.The pricing policy followed by Sixth Avenue Electronics, for 4 See infra notes 70-78 and accompanying text.5 See