Price-beating Guarantees Research Articles

Low-Price Guarantees in a Dual-Channel of Distribution

Manufacturers routinely rely on retailers to reach potential customers. Concurrently, they often offer low-price guarantees (LPGs) to customers who purchase through their direct channel. That is, should consumers find a lower price from distribution partners, manufacturers promise to match or even beat the lower price. Many manufacturers, such as Apple, Dell, Hewlett-Packard, Lenovo, and Goodyear, use price-matching guarantees (PMGs) against retailers. In the online travel industry, price-beating guarantees (PBGs) are prevalent among travel suppliers. In this paper, we develop a game-theoretic model to investigate the manufacturer's optimal choice of LPG policies and its implications for the manufacturer, retailer, and channel. Our analysis demonstrates that no LPG, PMG, and PBG can each emerge in equilibrium depending on consumer characteristics. While LPGs can improve channel profit, they may benefit the manufacturer at the expense of the retailer. As such, LPGs can intensify vertical channel conflict. However, both horizontal channel conflict and vertical channel conflict are present in dual channels. LPGs are not merely price discrimination device, they mitigate horizontal channel conflict. The benefit of LPGs in reducing horizontal channel conflict outweighs the loss from intensified vertical channel conflict under a wide range of conditions. Therefore, LPGs serve as channel coordination devices.

Measuring the Impact of Price Guarantees on Bidding in Consumer Online Auctions

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.

Do Low Price Signals Influence Online Purchases of Tourist Accommodation Services? The Moderating Role of Gender

Based on an experimental design applied to online purchases of hotel bookings, this study analyzes the influence of three low price signals and the distribution channel on perceived value and behavioral intentions. Positive influences on perceived value and buying intention were found for price beating guarantee and always low price signals but the distribution channel was only found to have an effect on behavioral intentions. Also, it has been seen that gender plays a moderating role on both perceived value and buying intention. Finally, the most effective low price differ in function of the type of enterprise that is transmitting the information to the consumers: price beating guarantee is the best option for hotel website but always low price guarantee is better for electronic intermediaries.

Measuring the Impact of Price Matching Guarantees on Price Dispersion and Willingness to Pay in 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 pairs of simultaneous auctions to examine the impact of the presence versus absence of PMGs and PBGs on consumer search, price dispersion, and willingness to pay for products. Results indicate that consumers switch less between auctions when either a PMG or a PBG is present compared to auction pairs without a price guarantee. Less switching results in higher price dispersion for auctions with either a PMG or a PBG. On average, selling prices are higher in auctions with a PMG or a PBG than in identical auctions without a PMG or a PBG. Bidder entry is higher in auctions that provide a PBG.

Refund depth effects on the impact of price-beating guarantees

Refund depth may influence the effectiveness of a price guarantee when a store offers to reimburse customers more than the price difference. Using an experimental study that features real stores with high credibility, this article shows that a simple price-matching guarantee has no effect on either the perceived value of an offer or intentions to visit the store. Low and high penalty levels have smaller effects than intermediate penalties, but the believability of price guarantee offers that contain a penalty remains constant; this finding may reflect a general distrust of additional penalties.

On the use of low-price guarantees to discourage price cutting

This paper formulates a novel test to assess whether, and to what extent, firms might be using low-price guarantees to discourage their rivals from cutting prices. The test is based on a comparison of paired observations of advertised prices that are set by competing firms at the same point in time on similar items, where one price is set by a firm that has a low-price guarantee and the other by a firm that does not have a low-price guarantee. Using data on retail tire prices, we find that the majority of paired observations involving firms that have price-matching guarantees are consistent with what one would expect if firms were using them to discourage price cutting, whereas the majority of paired observations involving firms that have price-beating guarantees are not. This suggests that price-matching and price-beating guarantees may be serving different purposes. The evidence also suggests that guarantees that apply to advertised prices only may be serving different purposes than guarantees that apply to both advertised and selling prices.

Differential effects of price‐beating versus price‐matching guarantee on retailers' price image

PurposeSeeks to study the effect of a low‐price guarantee (PG) on store price image and store patronage intention. Two kinds of low‐price guarantee are studied: a price‐matching guarantee (PMG) where the price difference is refunded and a price‐beating guarantee (PBG) where a retailer offers an additional compensation.Design/methodology/approachA questionnaire is used to collect information on 180 non‐student respondents in an experimental framework where low‐price guarantee dimension is manipulated through three advertisements for printers.FindingsFindings are: first, that PG indeed lowers store price image, increases the confidence that the store has lower prices and increases patronage intention; second, that, compared with a PMG whose effects are positive but rather small, a PBG further lowers the store price image on the low prices dimension without increasing the intention to search for lower price, this intention being already rather high in the PMG condition; third, that a larger effect is observed for non‐regular customers.Research limitations/implicationsResearch limitations are associated with the data collection. For greater reality the study uses an existing retail chain, so specific effects coming from this chain could influence the results but this bias cannot be evaluated as the experiment involves one retailer only.Practical implicationsPractical implications are that price image can be manipulated without any change in pricing policy by a low‐price guarantee and that the interest to adopt a price‐beating guarantee is real.Originality/valueThe contribution of this study lies in its focus on a large PBG level that retailers already apply and in demonstrating that a PG depends on the relationship between the consumer and the retailer with a stronger effect on non‐regular customers.

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

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.

Pro-competitive Price Beating Guarantees: Experimental Evidence

We report experimental results on duopoly pricing with and without price beating guarantees (PBG). In two control treatments, price beating is either imposed as an industry-wide rule or offered as a business strategy. Our major finding is that when price beating guarantees are imposed as a rule or offered as an option, effective prices are equal to or lower than those in a baseline treatment in which price beating is forbidden. Also, when price beating is treated as a business strategy, less than 50% of subjects adopted the guarantee, suggesting that, subjects realize the pro-competitive effects of the guarantee.

Can low-price guarantees deter entry?

This paper examines the strategic use of low-price guarantees (LPGs) as an entry deterrent. The entire space of contemporaneous LPG messages is partitioned according to their ability to deter entry and/or increase the incumbent’s profits. While most price-matching and price-beating guarantees cannot deter entry into a perfectly contestable market, there do exist special classes of price-beating guarantees that enable the incumbent to prevent entry. Interestingly, both price-matching and price-beating can be a part of the incumbent’s strategy in subgame perfect equilibria of the game where the firms choose LPGs from 14 classes defined in the paper.