Price Protection

What It Is:

Price protection is an agreement between a buyer and a seller whereby the parties agree to fix the price of a good or service for a specific period of time.

How It Works/Example:

In practice, price protection (sometimes called purchase protection) is a feature of many credit cards, whereby customers can get a refund on purchases made with the credit card if the price of those purchases goes down within a certain time frame after the purchase.

For example, if you purchase an airline ticket to Orlando for $750 on January 1 with a credit card, but then the price falls to $500 on January 23, a price protection guarantee in the credit card contract entitles you to a $250 refund from your credit card company.

Why It Matters:

Price protection is a way to induce sales by easing customers' uncertainty about price changes. As such, price protection is more effective for goods and services whose prices change frequently. Though it is a common component of credit card agreements, it is generally not well-known.