Abstract
We study price guarantees in consumer online auctions. A price-matching guarantee (PMG) is a promise to match a competitor's lower price. A price-beating guarantee (PBG) is a promise to beat that price. This study presents a large-scale controlled field experiment involving 240 pairs of simultaneous auctions to examine the impact of PMGs and PBGs on consumer consideration of alternate auctions, auction choice, and final auction price. We find that on average, selling prices are 5.6% higher with a PMG and 14.5% higher with a PBG than comparable auctions without a price guarantee. Results from our two-stage dynamic model show a positive influence of PBGs on search, that is, consideration of alternate auctions, but a negative influence of PMG, in particular, for frequently purchased goods and higher value products. Further analysis suggests that the positive (negative) influence of PMG (PBG) on search is stronger for higher value products, whereas the impact of consideration of alternate auctions on choice is negatively influenced by price differences and the number of bidders.
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