Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 11

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 cutthroat 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.