The Effects of Price-Matching Guarantees on Prices PDF Download
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Author: Subhasish Dugar
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
This study reports experiments on two competing theories of price-matching guarantees (PMGs). The dominant view (Salop [1986]) in the literature suggests that PMGs can alter pricing incentives of firms and sustain anti-competitive outcome in the market. However, a recent theoretical extension (Hviid and Shaffer [1999]) argues that this anti-competitive outcome can be undermined if buyers incur costs in invoking these guarantees. Therefore, it is natural to wonder how these conclusions stand up empirically. In order to provide empirical evidence on the impact of PMGs on prices, we study a variety of stylized market models that capture the essence of the two theories, obtain testable predictions and lay out the design of the controlled experiment. Results indicate that in the absence of any hassle costs, PMGs can sustain the predicted collusive outcome. On the other hand, the presence of buyers who incur positive hassle costs significantly mitigates, though not fully as theory predicts, the price-facilitating power of PMGs. Our findings indicate that policy makers should heed the potentially anti-competitive effects of PMG related advertisements on prices.
Author: Subhasish Dugar
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
This study reports experiments on two competing theories of price-matching guarantees (PMGs). The dominant view (Salop [1986]) in the literature suggests that PMGs can alter pricing incentives of firms and sustain anti-competitive outcome in the market. However, a recent theoretical extension (Hviid and Shaffer [1999]) argues that this anti-competitive outcome can be undermined if buyers incur costs in invoking these guarantees. Therefore, it is natural to wonder how these conclusions stand up empirically. In order to provide empirical evidence on the impact of PMGs on prices, we study a variety of stylized market models that capture the essence of the two theories, obtain testable predictions and lay out the design of the controlled experiment. Results indicate that in the absence of any hassle costs, PMGs can sustain the predicted collusive outcome. On the other hand, the presence of buyers who incur positive hassle costs significantly mitigates, though not fully as theory predicts, the price-facilitating power of PMGs. Our findings indicate that policy makers should heed the potentially anti-competitive effects of PMG related advertisements on prices.
Author: Joydeep Srivastava
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Many retailers offer a price-matching guarantee that promises to pay consumers the difference if they find a lower price elsewhere. This article proposes that the effectiveness of a price-matching guarantee as a signal of low store prices depends on individuals' beliefs about the degree to which other consumers in the market engage in price search, enforce price-matching guarantees, or both. Consistent with signaling theory, results of a survey and two experimental studies demonstrate that market level factors affect consumer beliefs about the extent to which others engage in price search and thereby the effectiveness of price-matching guarantees in lowering perceptions of store prices. The implications of the findings for retail strategy are discussed along with directions for future research.
Author: Hong Yuan
Publisher:
ISBN:
Category :
Languages : en
Pages : 12
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Book Description
Price-matching guarantees are commonly used by sellers as promises to match the lowest price for an item that a customer can find elsewhere. In this paper, we use a market experiment approach to examine buyer search as well as sellers' pricing decisions in the presence versus absence of Price-Matching Guarantees. We use student subjects as well as real consumers in an interactive laboratory setting to trade with each other, acting as buyers and sellers. Our findings from two experiments indicate that when searchers' demand is more elastic than non-searchers, PMGs can result in more intense price competition, even when sellers are symmetric. Price-Matching sellers benefit from converting more consumers into searchers who buy a larger quantity at a lower price. The lower (average) market prices also benefit buyers. These implications should be of great interest to researchers, practitioners, and public policymakers.
Author: Jennifer Helen Haydock
Publisher:
ISBN:
Category : Consumer behavior
Languages : en
Pages : 0
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Author: Sridhar Moorthy
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Category :
Languages : en
Pages : 0
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Book Description
Are price-matching guarantees anticompetitive? This paper examines the incentives for price-matching guarantees in markets where information about prices is costly. Under some conditions the conventional explanation of price-matching announcements as facilitating collusion finds support, and is even strengthened. But our model provides an additional explanation for the practice. A price-matching guarantee may be a credible and easily understood means of communicating to uninformed consumers that a firm is low-priced. The credibility of the signal to uninformed consumers is assured by the behaviour of informed consumers. We contrast the testable implications of our model with those of the anticompetitive theories and discuss supportive evidence from an illustrative sample of retailers.
Author: Enrique Fatas
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ISBN:
Category :
Languages : en
Pages : 0
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Book Description
In this paper we experimentally test the ability of Price-Matching Guarantees (PMG) to rise prices above the competitive level. We implement three different treatments of symmetric duopolies to check the effect of PMG both as a market institution and as a business strategy. In the absence of any low-price guarantee, prices get close to the Bertrand-Nash equilibrium although in the 50 rounds of the experiment no full convergence is obtained. The existence of PMG as an institution in a market where firms decide only about prices results in a clear collusive outcome as all markets quickly and fully converge to the collusive prediction. If we allow subjects to decide whether they adopt price matching or not we observe that almost all subjects decide to adopt PMG; prices significantly increases over the first treatment observed prices and are very close to the collusive ones.
Author: Nicholas H. Lurie
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
In 3 experiments, we show that price-matching guarantees affect the process through which consumers translate price information into subjective judgments. In Experiment 1, we find that price-matching guarantees appear to change the standard used in price evaluation by raising consumers' estimates of the lowest and average prices in the market. This leads consumers to perceive products and stores that offer price-matching guarantees as less expensive. In Experiment 2, we show that evaluations of product price information are affected by the presence of a price-matching guarantee only when consumers do not know the range of market prices. In Experiment 3, we extend these findings to show that consumer evaluations of the cost of products in a store, inferred on the basis of store characteristics, are also influenced by the presence of a price-matching guarantee.
Author: Luís M. B. Cabral
Publisher:
ISBN:
Category : Consumer behavior
Languages : en
Pages : 31
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Book Description
On May 27, 2015, the Shell network of gas stations in Germany introduced a Price Matching Guarantee (PMG) available to its card-carrying members. In the ensuing weeks, a series of attempts at tacit collusion took place, typically with stations increasing prices at around 12 noon by 3 cents. In this paper, we argue that the juxtaposition of these two events is not a mere coincidence. We first present a theoretical model to argue that a PMG can be a collusion enacting practice. We then test various predictions of our theoretical model. Our source of identification is geographical variation in the presence of Shell stations (the chain that enacted the PMG) as well consumer demographics. Our empirical tests are consistent with the theoretical predictions, showing effects that are both statistically and economically significant.
Author: Shakun D. Mago
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We use experimental methods to demonstrate the anti-competitive potential of price matching guarantees in both symmetric and asymmetric cost duopolies. Our findings establish that when costs are symmetric, price-matching guarantees significantly increase market prices. In markets with cost asymmetries, guaranteed prices remain high relative to prices without the use of guarantees, but the overall ability of price guarantees to act as a collusion facilitating device becomes contingent on the relative cost difference. Lesser use of guarantees, combined with lower average prices and slower convergence to the collusive level, suggest that the mere presence of cost asymmetries may curtail collusive behavior.
Author: Anna Bottasso
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ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We analyze a sample of consumer-electronics products sold by the US NewEgg online-retailer to study the impact of Price Matching Guarantees (PMGs) policies on prices. By applying aDifference-in-Differences approach,we find that prices of the policy-adopting retailer increase by 4.7% during the policy validity period and up to five days after the treatment, while those of the major non-adopting competitor are not affected. Results are mainly driven by highlyrated, visible and expensive products, while the policy does not affect low-rated, less visible and cheaper ones. Overall findings are consistent with the hypothesis that PMGs act as price discrimination tools.
