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Many retailers advertise price-matching policies, such as,

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Many retailers advertise price-matching policies, such as, [#permalink] New post 12 Nov 2012, 10:44
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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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Re: Many retailers advertise price-matching policies [#permalink] New post 12 Nov 2012, 19:24
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?
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Re: Many retailers advertise price-matching policies [#permalink] New post 12 Nov 2012, 19:49
I was little confused between A and D but finally selected D.

Is it correct?
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Re: Many retailers advertise price-matching policies [#permalink] New post 12 Nov 2012, 20:05
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.
This leads us to (D).
" 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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Re: Many retailers advertise price-matching policies [#permalink] New post 14 Nov 2012, 00:07
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.
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Re: Many retailers advertise price-matching policies [#permalink] New post 14 Nov 2012, 02:10
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.
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Re: Many retailers advertise price-matching policies [#permalink] New post 14 Nov 2012, 02:11
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.
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Re: Many retailers advertise price-matching policies [#permalink] New post 14 Nov 2012, 02:31
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.
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Re: Many retailers advertise price-matching policies [#permalink] New post 14 Nov 2012, 05:23
Expert's post
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.
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Re: Many retailers advertise price-matching policies   [#permalink] 14 Nov 2012, 05:23
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