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# Many retailers advertise price-matching policies, such as,

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Director
Joined: 21 Dec 2009
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12 Nov 2012, 11:44
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82% (03:10) correct 18% (02:55) wrong based on 67 sessions

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Many retailers advertise price-matching policies, such as, “In the unlikely event that you find an identical
item that you purchased here offered at a lower price in another store, we promise to refund the difference.”
Contrary to what might logically be expected, a recent study finds that the presence of such a policy leads
to a decrease in consumer searches when search costs are low (e.g., when multiple competitor stores are
clustered in a small area), but an increase in consumer searches when search costs are high. These findings
can be explained if a store’s price-matching policies __________.

Which of the following most logically completes the passage?

A. affect consumer search behavior only when information about prices in other stores is unavailable
B. encourage consumers to shop around when there are multiple competitor stores nearby
C. force nearby competitor stores to reduce their prices in order to retain a market share
D. are taken as credible indicators of low prices at the store when and only when it is easy for consumers
to verify them
E. lead to significant increases in consumer searches only for high-price purchases
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Senior Manager
Joined: 22 Dec 2011
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12 Nov 2012, 20:24
gmatbull wrote:
Many retailers advertise price-matching policies, such as, “In the unlikely event that you find an identical
item that you purchased here offered at a lower price in another store, we promise to refund the difference.”
Contrary to what might logically be expected, a recent study finds that the presence of such a policy leads
to a decrease in consumer searches when search costs are low (e.g., when multiple competitor stores are
clustered in a small area), but an increase in consumer searches when search costs are high. These findings
can be explained if a store’s price-matching policies __________.

Which of the following most logically completes the passage?

A. affect consumer search behavior only when information about prices in other stores is unavailable
B. encourage consumers to shop around when there are multiple competitor stores nearby
C. force nearby competitor stores to reduce their prices in order to retain a market share
D. are taken as credible indicators of low prices at the store when and only when it is easy for consumers
to verify them
E. lead to significant increases in consumer searches only for high-price purchases

IMO D...
Customer search is low when there are shops nearby and they will search and verify when the shops are far way
One can only say D complete the argument coherently.

What does the answer guide say?
Intern
Joined: 16 Oct 2012
Posts: 18
Location: United States
GMAT 1: 560 Q41 V27
GPA: 3.73
WE: Operations (Commercial Banking)
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12 Nov 2012, 20:49
I was little confused between A and D but finally selected D.

Is it correct?
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Joined: 16 Oct 2010
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Location: Pune, India
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12 Nov 2012, 21:05
1
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Expert's post
gmatbull wrote:
Many retailers advertise price-matching policies, such as, “In the unlikely event that you find an identical
item that you purchased here offered at a lower price in another store, we promise to refund the difference.”
Contrary to what might logically be expected, a recent study finds that the presence of such a policy leads
to a decrease in consumer searches when search costs are low (e.g., when multiple competitor stores are
clustered in a small area), but an increase in consumer searches when search costs are high. These findings
can be explained if a store’s price-matching policies __________.

Which of the following most logically completes the passage?

A. affect consumer search behavior only when information about prices in other stores is unavailable
B. encourage consumers to shop around when there are multiple competitor stores nearby
C. force nearby competitor stores to reduce their prices in order to retain a market share
D. are taken as credible indicators of low prices at the store when and only when it is easy for consumers
to verify them
E. lead to significant increases in consumer searches only for high-price purchases

This is an explain the paradox question.

If search cost is low, you would expect people to search before buying into the policy. If search cost is high, you would expect them not to search. But they do just the opposite. The point is 'why'? You last sentence begins with - these findings can be explained if store's policy ....
So basically you have to look for the option that explains this paradox. Think why would people behave that way? The first thing that came to my mind was that people would assume that if search cost is low, other people have already searched and hence the prices are genuine. If search costs are high, they would expect that other people have not put in the effort to search other stores so they might themselves put in the effort to search for a lower cost before buying. That is what explains the paradox to me.
" price-matching policies are taken as credible indicators of low prices at the store when and only when it is easy for consumers
to verify them"
i.e. people assume that policies are credible when it is easy for customers to verify them i.e. when search cost is low.
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Get started with Veritas Prep GMAT On Demand for $199 Veritas Prep Reviews Director Joined: 21 Dec 2009 Posts: 591 Concentration: Entrepreneurship, Finance Followers: 18 Kudos [?]: 608 [0], given: 20 Re: Many retailers advertise price-matching policies [#permalink] ### Show Tags 14 Nov 2012, 01:07 Karishma, Thanks for your explanations; it is in fact a paradox scenario;otherwise, how would someone want to spend more when shops are farther apart? So, [Reveal] Spoiler: D, the OA says customers believe more in price-matching policies when shops are closer. No need to visit the next door shop. However, with far shops, the price-matching policies are believed NOT to represent the true price. As such, customers travel far to purchase what might be a price advantage for them. _________________ KUDOS me if you feel my contribution has helped you. Current Student Status: Final Lap Up!!! Affiliations: NYK Line Joined: 21 Sep 2012 Posts: 1095 Location: India GMAT 1: 410 Q35 V11 GMAT 2: 530 Q44 V20 GMAT 3: 630 Q45 V31 GPA: 3.84 WE: Engineering (Transportation) Followers: 38 Kudos [?]: 474 [0], given: 70 Re: Many retailers advertise price-matching policies [#permalink] ### Show Tags 14 Nov 2012, 03:10 I have a doubt..... What i understand from the post of karishma that there is a paradox and we need to solve.... Pls help me clear my doubt The argument states that there is an advt. by a shop that it will return the difference in price if found lower than theirs in other store......The customers don't verify the products whose cost is low but verify the cost of higher priced goods. This is behaviour of customer is unlikely...... We need to explain this unusual behaviour of the customer in terms of " Price matching policies..." Assume that the customers are aware that all the shops keep their price on lower priced goods same but not for higher priced good. Hence keeping this in mind customer look for store where they can get the same higher priced product at little bit lower cost comparatively. Now with this pre thinking answer choices are scanned i feel that C and D are contenders. C. force nearby competitor stores to reduce their prices in order to retain a market share I think C clearly states what i have stated in my explanation. Pls explain whether my assumption is wrong. Current Student Status: Final Lap Up!!! Affiliations: NYK Line Joined: 21 Sep 2012 Posts: 1095 Location: India GMAT 1: 410 Q35 V11 GMAT 2: 530 Q44 V20 GMAT 3: 630 Q45 V31 GPA: 3.84 WE: Engineering (Transportation) Followers: 38 Kudos [?]: 474 [0], given: 70 Re: Many retailers advertise price-matching policies [#permalink] ### Show Tags 14 Nov 2012, 03:11 I have a doubt..... What i understand from the post of karishma that there is a paradox and we need to solve.... Pls help me clear my doubt The argument states that there is an advt. by a shop that it will return the difference in price if found lower than theirs in other store......The customers don't verify the products whose cost is low but verify the cost of higher priced goods. This is behaviour of customer is unlikely...... We need to explain this unusual behaviour of the customer in terms of " Price matching policies..." Assume that the customers are aware that all the shops keep their price on lower priced goods same but not for higher priced good. Hence keeping this in mind customer look for store where they can get the same higher priced product at little bit lower cost comparatively. Now with this pre thinking answer choices are scanned i feel that C and D are contenders. C. force nearby competitor stores to reduce their prices in order to retain a market share I think C clearly states what i have stated in my explanation. Pls explain whether my assumption is wrong. Director Status: Done with formalities.. and back.. Joined: 15 Sep 2012 Posts: 647 Location: India Concentration: Strategy, General Management Schools: Olin - Wash U - Class of 2015 WE: Information Technology (Computer Software) Followers: 43 Kudos [?]: 505 [0], given: 23 Re: Many retailers advertise price-matching policies [#permalink] ### Show Tags 14 Nov 2012, 03:31 Archit143 wrote: I have a doubt..... What i understand from the post of karishma that there is a paradox and we need to solve.... Pls help me clear my doubt The argument states that there is an advt. by a shop that it will return the difference in price if found lower than theirs in other store......The customers don't verify the products whose cost is low but verify the cost of higher priced goods. This is behaviour of customer is unlikely...... We need to explain this unusual behaviour of the customer in terms of " Price matching policies..." Assume that the customers are aware that all the shops keep their price on lower priced goods same but not for higher priced good. Hence keeping this in mind customer look for store where they can get the same higher priced product at little bit lower cost comparatively. Now with this pre thinking answer choices are scanned i feel that C and D are contenders. C. force nearby competitor stores to reduce their prices in order to retain a market share I think C clearly states what i have stated in my explanation. Pls explain whether my assumption is wrong. Not sure, but it is likely that you may have mixed this question up with some other question. the argument doesnt deal with consumer behaviour wrt lower/higher priced goods, but it deals with consumer behaviour wrt clustered(closer) shops/not clustered shops. Ans D it is and rightly so. _________________ Lets Kudos!!! Black Friday Debrief Veritas Prep GMAT Instructor Joined: 16 Oct 2010 Posts: 6827 Location: Pune, India Followers: 1915 Kudos [?]: 11918 [0], given: 221 Re: Many retailers advertise price-matching policies [#permalink] ### Show Tags 14 Nov 2012, 06:23 Archit143 wrote: I have a doubt..... What i understand from the post of karishma that there is a paradox and we need to solve.... Pls help me clear my doubt The argument states that there is an advt. by a shop that it will return the difference in price if found lower than theirs in other store......The customers don't verify the products whose cost is low but verify the cost of higher priced goods. This is behaviour of customer is unlikely...... No! The customers don't verify the cost when the shops are closely located i.e. it is easy to verify (the cost to verify is low - they don't have to travel much to verify). They verify when the shops are located far from each other i.e. they have to travel a lot to verify i.e. the cost to verify is high. This is unexpected, isn't it. This is the paradox you need to resolve. See if the argument makes sense now. _________________ Karishma Veritas Prep | GMAT Instructor My Blog Get started with Veritas Prep GMAT On Demand for$199

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10 Aug 2015, 04:07
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Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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Re: Many retailers advertise price-matching policies, such as,   [#permalink] 10 Aug 2015, 04:07
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