Question

In: Economics

Under a price matching guarantee, a seller offers to meet a lower price from another seller....

Under a price matching guarantee, a seller offers to meet a lower price from another seller. Although the details of these offers may vary, price matches generally allow a buyer to show seller A the lower price in seller B's ad, and seller A provides the product to the buyer at the lower price. Also, some guarantees may allow buyers who previously purchased from seller A to claim a refund equal to the price difference if they find another seller with a price lower than they paid. Lets think about the concept of rivalry between two sellers that escalated into a price war. One of the firms ended the price war by declaring that they would match any price that is lower than their posted price.  In some cases, groups of firms also offer to match lower prices if they are operating a cartel and collectively raise prices above the competitive level.  In this case, customers who take advantage of the price matching guarantee let the cartel members know if someone in the group has cheated on the cartel agreement and is discounting prices below the agreed level. Sometimes, firms simply offer price matches as a way to keep up with competition and maintain market share.

Do you recall seeing particular products or companies that have made price-matching guarantees?

Have you ever taken advantage of a price-matching guarantee?

Which type of consumer is more willing to take advantage of price matches, elastic or inelastic buyers?

Solutions

Expert Solution

Companies that have made price guarantees are grocery stores such as walmart who have made price guarantee of matching offline and online prices and also with other retailers such as Amazon, target and sears. All the products available in Wal-Mart are ensured that they will match the price of other groceries.

Yes I have taken advantage of a price matching guarantee, when a travel agency offers a product at a lower price, because I told them that I would go elsewhere and purchase the tour from other agency. Also when taking a gym membership, I told that I was getting a membership at a cheaper rate elsewhere and the rate was matched by the other gym.

Elastic buyers are more flexible and willing to purchase goods wherever they are cheaper. Thus they try to take advantage of price matches.


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