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Buy Now, Search Later: A Model of Low-Price Guarantees with Post-Purchase Search

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  • Maria Arbatskaya

Abstract

A common feature of low-price guarantees is that they allow consumers to postpone bargain-hunting until after the purchase. This paper addresses a number of questions concerning the adoption pattern of price-matching and price-beating guarantees with post-purchase search and their impacts on market prices. It is shown that low-price guarantees are offered by low-cost firms and are associated with relatively low prices. All firms weakly reduce their prices in the presence of low-price guarantees, and firms offering low-price guarantees usually have incentives to cut their prices. These results are in sharp contrast with the traditional view on these policies as collusive practices.

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Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0520.

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Date of creation: Jul 2005
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Handle: RePEc:emo:wp2003:0520

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  1. Corts, Kenneth S., 1995. "On the robustness of the argument that price-matching is anti-competitive," Economics Letters, Elsevier, vol. 47(3-4), pages 417-421, March.
  2. Jennifer F. Reinganum, 1978. "A Simple Model of Equilibrium Price Dispersion," Discussion Papers 335, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Arbatskaya, Maria & Hviid, Morten & Shaffer, Greg, 2006. "On the use of low-price guarantees to discourage price cutting," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1139-1156, November.
  4. Logan, John W. & Lutter, Randall W., 1989. "Guaranteed lowest prices: do they facilitate collusion?," Economics Letters, Elsevier, vol. 31(2), pages 189-192, December.
  5. Corts, Kenneth S., 1997. "On the competitive effects of price-matching policies," International Journal of Industrial Organization, Elsevier, vol. 15(3), pages 283-299, May.
  6. Arbatskaya, Maria, 2001. "Can low-price guarantees deter entry?," International Journal of Industrial Organization, Elsevier, vol. 19(9), pages 1387-1406, November.
  7. Morten Hviid & Greg Shaffer, 1999. "Hassle Costs: The Achilles' Heel of Price-Matching Guarantees," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(4), pages 489-521, December.
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