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Optimal low-price guarantees with anchoring

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Author Info

  • Morten Hviid

    ()

  • Greg Shaffer

    ()

Abstract

Many low-price guarantees are offered by small local firms who compete against much larger rivals. The prices of these larger rivals are often set nationally and thus are independent of local market conditions. Our objective in this paper is to explain why small firms in such environments might nevertheless adopt low-price guarantees. We characterize when offering a low-price guarantee is profitable, and assess which form it should take (i.e., conditional on offering a low-price guarantee, should the small firm offer to match or beat its larger competitor’s prices). We also assess the implications thereof (i.e., do the low-price guarantees benefit or harm the small firm’s customers). Copyright The Author(s) 2012

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Bibliographic Info

Article provided by Springer in its journal Quantitative Marketing and Economics.

Volume (Year): 10 (2012)
Issue (Month): 4 (December)
Pages: 393-417

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Handle: RePEc:kap:qmktec:v:10:y:2012:i:4:p:393-417

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Web page: http://www.springerlink.com/link.asp?id=111240

Related research

Keywords: Price-matching policy; Price-beating policy; Price discrimination; L11; L13; L41;

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References

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  15. repec:rje:randje:v:37:y:2006:2:p:449-465 is not listed on IDEAS
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Cited by:
  1. Schwalbe, Ulrich & Baake, Pio, 2013. "Price Guarantees, Consumer Search, and Hassle Costs," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80023, Verein für Socialpolitik / German Economic Association.
  2. Pio Baake & Ulrich Schwalbe, 2013. "Price Guarantees, Consumer Search, and Hassle Costs," Discussion Papers of DIW Berlin 1335, DIW Berlin, German Institute for Economic Research.

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