In two successive months (November and December), a Florida tire retailer listed prices for 35 types of
Question:
In two successive months (November and December), a Florida tire retailer listed prices for 35 types of tires in newspaper advertisements. In November the average price was $45, and in December the average price was $55. The December advertisement was different in another way: it included a low-price guarantee under which the retailer agreed to match any lower advertised price (and also pay the customer some percentage of the price gap). In fact, for each of the 35 types of tires, the December price was the same or higher than the November price. In this case, a low-price guarantee generated higher prices.
Is the relationship between low-price guarantees and prices apparent or real? A careful study of the retail tire market suggests that prices are generally higher in markets where firms offer low-price guarantees. On average, the presence of a low-price guarantee increases prices by $4 per tire, or about 10! percent of the price.
Question.
Do low-price guarantees generate higher or lower prices?
Step by Step Answer:
Microeconomics Principles Applications And Tools
ISBN: 9780134078878
9th Edition
Authors: Arthur O'Sullivan, Steven Sheffrin, Stephen Perez