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Consumer Information Heterogeneity and Competitive Strategies under Price-Matching Guarantees

Author

Listed:
  • Chen, Y.
  • Narasimhan, C.
  • Zhang, Z.J.

Abstract

Price-matching guarantees are widely used in consumer and industrial markets. Previous studies argue that they are a marketing tactic that facilitates implicit price collusion. We show, however, that when consumers have incomplete price information, the adoption of price-matching guarantees allows consumer to shop opportunistically and reduce their store loyalty which in turn intensifies price competition through reducing the (inframarginal) costs of price promotions. However, the stores cannot help but use this marketing tactic because they are caught in a Prisoner's Dilemma situation.

Suggested Citation

  • Chen, Y. & Narasimhan, C. & Zhang, Z.J., 1998. "Consumer Information Heterogeneity and Competitive Strategies under Price-Matching Guarantees," Washington University 98-03, Business, Law and Economics Center, John M. Olin School of Business, Washington University.
  • Handle: RePEc:fth:wablec:98-03
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    More about this item

    Keywords

    INFORMATION ; PRICES ; COMPETITION;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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