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Price Mathing Guarantees and Consumer Search

Maarten Janssen () and Alexei Parakhonyak
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Maarten Janssen: Department of Economics, University of Vienna and State University Higher School of Economics (Moscow)

HSE Working papers from National Research 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

Keywords: Sequential Search; Price Matching Guarantees; Welfare Analysis (search for similar items in EconPapers)
JEL-codes: D40 D83 L13 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2011
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Published in WP BRP Series: Economics / EC, December 2011, pages 1-32

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