Best-price Guarantees as a Quality Signal
AbstractThis paper shows that best-price guarantees can enhance welfare, in contrast to findings in recent literature. While a high-quality monopolist can signal its quality strictly through high prices, using both price and a best-price guarantee may allow the firm to signal its quality with a smaller price distortion. A low-quality monopolist will not mimic its high-quality counterpart by offering a best-price guarantee, because the accompanying restrictions are too costly. Best-price guarantees are similar to money-back guarantees and other more general contracts in their ability to allow less costly signaling. The welfare enhancing capabilities of these contracts imply that the antitrust authorities should regard them more favorably.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 13466.
Date of creation: 02 Nov 2004
Date of revision: 02 Nov 2004
Most favored customer; MFCC; best-price guarantees; signaling; game theory; industrial organization;
Find related papers by JEL classification:
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- L00 - Industrial Organization - - General - - - General
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