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Hassle Costs: The Achilles' Heel of Price-Matching Guarantees

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  • Morten Hviid
  • Greg Shaffer

Abstract

We show that price-matching guarantees can facilitate monopoly pricing only if firms automatically match prices. If consumers must instead request refunds (thereby incurring hassle costs), we find that any increase in equilibrium prices due to firms' price-matching policies will be small; often, no price increase can be supported. In symmetric markets price-matching guarantees cannot support any rise in prices, even if hassle costs are arbitrarily small In asymmetric markets, higher prices can be supported, but the prices fall well short of maximizing joint profits. Our model can explain why some firms adopt price-matching guarantees while others do not. Copyright (c) 1999 Massachusetts Institute of Technology.

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  • 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.
  • Handle: RePEc:bla:jemstr:v:8:y:1999:i:4:p:489-521
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