Quantitative Marketing and Economics

, Volume 10, Issue 4, pp 393-417

First online:

Open Access This content is freely available online to anyone, anywhere at any time.

Optimal low-price guarantees with anchoring

  • Morten HviidAffiliated withUEA Law School and ESRC Centre for Competition Policy, University of East Anglia
  • , Greg ShafferAffiliated withSimon School of Business, University of RochesterNorwich Business School, University of East Anglia Email author 


Many low-price guarantees are offered by small local firms who compete against much larger rivals. The prices of these larger rivals are often set nationally and thus are independent of local market conditions. Our objective in this paper is to explain why small firms in such environments might nevertheless adopt low-price guarantees. We characterize when offering a low-price guarantee is profitable, and assess which form it should take (i.e., conditional on offering a low-price guarantee, should the small firm offer to match or beat its larger competitor’s prices). We also assess the implications thereof (i.e., do the low-price guarantees benefit or harm the small firm’s customers).


Price-matching policy Price-beating policy Price discrimination

JEL Classification

L11 L13 L41