Price Guarantees, Consumer Search, and Hassle Costs

Pio Baake and Ulrich Schwalbe

No 1335, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: The paper deals with the competitive effects of price guarantees in a spatial duopoly where consumers can search for lower prices but have to incur hassle costs if they want to claim a price guarantee. It is shown that symmetric equilibria with and without price guarantees exist but price guarantees will have no effect on prices if search costs are low, hassle costs are high and the number of uninformed consumers is small. However, when both firms use price guarantees, there also exist payoff-dominant equilibria where both firms use mixed pricing strategies in the form of "high-low" pricing schemes, provided that the search costs are sufficiently high.

Keywords: Price Matching Guarantees; Search Costs; Oligopoly Pricing (search for similar items in EconPapers)
JEL-codes: L11 L13 L15 L41 (search for similar items in EconPapers)
Pages: 35 p.
Date: 2013
New Economics Papers: this item is included in nep-com, nep-ind and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Price Guarantees, Consumer Search, and Hassle Costs (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1335

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