Meet or Beat Any Price?

This is a story of theory and reality. Theory: What happens to competition when rivals say they'll "meet or beat" any advertised price (or, in rarer cases, any unadvertised price)? Hal R. Varian writes about this in today's New York Times, citing a pre-publication version of an academic paper you can read here: "On the Use of Low-Price Guarantees to Discourage Price Cutting."

In examining newspaper ads for tires, the researchers found that low-price marketers offered to match any price (advertised or not) about 14% of the time. On the other hand, the low-price marketers offered to match a competitor's advertised price about 75% of the time. If you, as a customer, come in with a rival's super-sale flyer in your hand, the low-price marketer will match or beat it. If you don't know about any lower advertised prices, you'll simply pay the low-price marketer's regular (presumably low) price.

Reality: I bought a sewing machine at Costco.com during a special sale, after a web search that found the same machine at similar prices elsewhere but with a longer wait for delivery. The machine was to be delivered on Tuesday afternoon. That morning, I received an e-mail from Costco, saying:

Recently, our buyers were able to negotiate an additional savings for this item. It is Costco's policy to always pass on the savings to our members. As such, we will be issuing a credit in the amount of $20.00 (plus tax, where applicable) to the credit card used when placing this order.

Even before the sewing machine had arrived, Costco refunded my $21 (tax, you know). I never had to look for any other marketers' special deals, advertised or not. Don't you like Costco's system?