Work

Optimal low-price guarantees with anchoring

Year: 2012

Type: article

Abstract: Many low-price guarantees are offered by small local firms who compete against much larger rivals. The prices of these larger rivals are often set nationally and thus are independent of local market conditions. Our objective in this paper is to explain why small firms in such environments might nevertheless adopt low-price guarantees. We characterize when offering a low-price guarantee is profitable, and assess which form it should take (i.e., conditional on offering a low-price guarantee, should the small firm offer to match or beat its larger competitor’s prices). We also assess the implications thereof (i.e., do the low-price guarantees benefit or harm the small firm’s customers).

Source: Quantitative Marketing and Economics

DOI: 10.1007/s11129-012-9121-z

Authors: Morten Hviid, Greg Shaffer

Institutions: University of East Anglia, University of Rochester

Language: English

Topic: Consumer Market Behavior and Pricing

Subfield: Marketing

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $2,990

Funder: Economic and Social Research Council