Hassle costs: The Achilles' heel of price-matching guarantees

Morten Hviid, Greg Shaffer

Research output: Contribution to journalArticlepeer-review

72 Citations (Scopus)

Abstract

We show that price-matching guarantees can facilitate monopoly pricing only if firms automatically match prices. If consumers must instead request refunds (thereby incurring hassle costs), we find that any increase in equilibrium prices due to firms' price-matching policies will be small; often, no price increase can be supported. In symmetric markets price-matching guarantees cannot support any rise in prices, even if hassle costs are arbitrarily small. In asymmetric markets, higher prices can be supported, but the prices fall well short of maximizing joint profits. Our model can explain why some firms adopt price-matching guarantees while others do not.
Original languageEnglish
Pages (from-to)489-521
Number of pages33
JournalJournal of Economics and Management Strategy
Volume8
Issue number4
DOIs
Publication statusPublished - 1999

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