Buy Now, Search Later: A Model of Low-Price Guarantees with Post-Purchase Search

38 Pages Posted: 18 Aug 2005

Date Written: January 2005

Abstract

A common feature of low-price guarantees is that they allow consumers to postpone bargain-hunting until after the purchase. This paper addresses a number of questions concerning the adoption pattern of price-matching and price-beating guarantees with post-purchase search and their impacts on market prices. It is shown that low-price guarantees are offered by low-cost firms, and are associated with relatively low prices. All firms weakly reduce their prices in the presence of low-price guarantees, and firms offering low-price guarantees usually have incentives to cut their prices. These results are in sharp contrast with the traditional view on these policies as collusive practices.

Keywords: Price-Matching, Price-Beating, Consumer Search, Price Competition

JEL Classification: D43, L13, M3

Suggested Citation

Arbatskaya, Maria, Buy Now, Search Later: A Model of Low-Price Guarantees with Post-Purchase Search (January 2005). Available at SSRN: https://ssrn.com/abstract=782334 or http://dx.doi.org/10.2139/ssrn.782334
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