Question

Many home improvement retailers like Home Depot and Lowes have low-price guarantee policies. At a minimum, these guarantees promise to match a rival’s price, and some promise to beat the lowest advertised price by a given percentage. Do these types of pricing strategies result in Bertrand competition and zero economic profits?

If not, why not? If so, suggest an alternative pricing strategy that will permit these firms to earn positive economic profits

Answer 1

Ans: ce → The low price guarantee pricing strategy Sometimes lains the zero economic profit. As long as de is greater than the average Cost, the firm can earn economic profit. y But if the low price guarantee pricing strategy continues for a long the price comes down to such a low level that it equals to Ac, the fim will only able to earn normal economic profits. » Alternatively, they can go for penetration pricing strategy. A penetration pricing Strategy Sets a low price as a Market weapon y Many firms begin penetration pricing with the intention of increasing prices in the future. In this case, marketers often price the preducts noticeably lower than the competitors. + Once the marketers achieve some market recognition through consumers trial purchase, they can raise the price to the competitive products and earn economic profit Scanned with CamScanner