Best-price Guarantees as a Quality Signal

Stephan Levy

MPRA Paper from University Library of Munich, Germany

Abstract: This paper shows that best-price guarantees can enhance welfare, in contrast to findings in recent literature. While a high-quality monopolist can signal its quality strictly through high prices, using both price and a best-price guarantee may allow the firm to signal its quality with a smaller price distortion. A low-quality monopolist will not mimic its high-quality counterpart by offering a best-price guarantee, because the accompanying restrictions are too costly. Best-price guarantees are similar to money-back guarantees and other more general contracts in their ability to allow less costly signaling. The welfare enhancing capabilities of these contracts imply that the antitrust authorities should regard them more favorably.

Keywords: Most favored customer; MFCC; best-price guarantees; signaling; game theory; industrial organization (search for similar items in EconPapers)
JEL-codes: L00 L15 (search for similar items in EconPapers)
Date: 2004-11-02, Revised 2004-11-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:13466

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