Price Guarantees, Consumer Search, and Hassle Costs

37 Pages Posted: 20 Nov 2013

See all articles by Pio Baake

Pio Baake

German Institute for Economic Research (DIW Berlin)

Ulrich Schwalbe

University of Hohenheim

Date Written: November 2013

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

JEL Classification: L11, L13, L15, L41

Suggested Citation

Baake, Pio and Schwalbe, Ulrich, Price Guarantees, Consumer Search, and Hassle Costs (November 2013). DIW Berlin Discussion Paper No. 1335, Available at SSRN: https://ssrn.com/abstract=2357323 or http://dx.doi.org/10.2139/ssrn.2357323

Pio Baake (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Ulrich Schwalbe

University of Hohenheim ( email )

Schloss Hohenheim
Stuttgart, 70593
Germany
+49 (0)711 45922992 (Phone)

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