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Price Mathing Guarantees and Consumer Search

Author

Listed:
  • Maarten Janssen

    (Department of Economics, University of Vienna and State University Higher School of Economics (Moscow))

  • Alexei Parakhonyak

    (Center for Advanced Studies, State University Higher School of Economics.)

Abstract

This paper examines the e ect of price matching guarantees (PMGs) in a sequential search model. PMGs are simultaneously chosen with prices and some consumers (shoppers) know the rms' decisions before buying, while others (non-shoppers) enter a shop rst before observing a rm's price and whether or not the rm has a PMG. In such an environment, PMGs increase the value of buying the good and therefore increase consumers' reservation prices. This increase is so large that even after accounting for the possible execution of PMGs, rms pro ts are larger under PMGs than without. We also consider the incentives of rms to choose PMGs and show that an equilibrium where all rms o er PMGs does not exist because of a free-riding problem. PMGs can only be an equilibrium phenomenon in an equilibrium where some rms do and others do not o er these guarantees

Suggested Citation

  • Maarten Janssen & Alexei Parakhonyak, 2011. "Price Mathing Guarantees and Consumer Search," HSE Working papers WP BRP 03/EC/2011, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:03/ec/2011
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Atabek Atayev, 2021. "Nonlinear Prices, Homogeneous Goods, Search," Papers 2109.15198, arXiv.org.
    2. Samir Mamadehussene & Francisco Silva, 2023. "Modeling Competition over Multiple Variables under Limited Consumer Awareness," Journal of Industrial Economics, Wiley Blackwell, vol. 71(1), pages 192-211, March.
    3. Maarten Janssen & Alexei Parakhonyak, 2014. "Consumer search markets with costly revisits," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 55(2), pages 481-514, February.
    4. Samir Mamadehussene, 2021. "Measuring the competition effects of price-matching guarantees," Quantitative Marketing and Economics (QME), Springer, vol. 19(3), pages 261-287, December.
    5. John Asker & Heski Bar-Isaac, 2020. "Vertical Information Restraints: Pro- and Anticompetitive Impacts of Minimum-Advertised-Price Restrictions," Journal of Law and Economics, University of Chicago Press, vol. 63(1), pages 111-148.
    6. Agustin V. Ruiz Vega & Consuelo Riano Gil & Carla Di Pierri Del Vecchio, 2014. "Do Low Price Signals Influence Online Purchases of Tourist Accommodation Services? The Moderating Role of Gender," Business and Management Research, Business and Management Research, Sciedu Press, vol. 3(4), pages 96-111, December.
    7. Dong, Gang & Huang, Rongbing, 2022. "Inter-port price competition in a multi-port gateway region," Research in Transportation Economics, Elsevier, vol. 94(C).
    8. Trost, Michael, 2021. "The collusive efficacy of competition clauses in Bertrand Markets with capacity-constrained retailers," Hohenheim Discussion Papers in Business, Economics and Social Sciences 04-2021, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    9. Hao Li & Qing Xiao & Ting Peng, 2023. "Optimal Pricing Strategy of New Products and Remanufactured Products Considering Consumers’ Switching Purchase Behavior," Sustainability, MDPI, vol. 15(6), pages 1-26, March.
    10. Trost, Michael, 2022. "Unraveling the spreading pattern of collusively effective competition clauses," Hohenheim Discussion Papers in Business, Economics and Social Sciences 01-2022, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    11. Arcan Nalca, 2017. "Price-matching guarantees in dual channels," Quantitative Marketing and Economics (QME), Springer, vol. 15(2), pages 165-186, June.
    12. Muck, Johannes, 2016. "Tariff-mediated network effects with incompletely informed consumers," DICE Discussion Papers 210, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    13. Atayev, Atabek, 2021. "Nonlinear prices, homogeneous goods, search," ZEW Discussion Papers 21-092, ZEW - Leibniz Centre for European Economic Research.
    14. Francisco Silva & Samir Mamadehussene, 2020. "The Equivalence Between Sequential and Simultaneous Firm Decisions," Documentos de Trabajo 541, Instituto de Economia. Pontificia Universidad Católica de Chile..
    15. Diana Maria Vrânceanu & Ionel Dumitru, 2016. "An Insight on the Influence of Price-Matching Guarantees on Consumer Behaviour in Romania," International Conference on Marketing and Business Development Journal, The Bucharest University of Economic Studies, vol. 2(1), pages 109-114, July.
    16. Dong, Gang & Huang, Rongbing & Ng, Peggy, 2016. "Tacit collusion between two terminals of a port," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 93(C), pages 199-211.
    17. Kim, Byung-Cheol & Ahmed, Mishal, 2020. "Price-match guarantees and investment incentives," Information Economics and Policy, Elsevier, vol. 53(C).
    18. Aleksandr Yankelevich & Brady Vaughan, 2016. "Price‐Match Announcements in a Consumer Search Duopoly," Southern Economic Journal, John Wiley & Sons, vol. 82(4), pages 1186-1211, April.

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    More about this item

    Keywords

    Sequential Search; Price Matching Guarantees; Welfare Analysis;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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