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Price‐matching guarantees

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  • Sridhar Moorthy
  • Ralph A. Winter

Abstract

Are price-matching guarantees anticompetitive? This paper examines the incentives for price-matching guarantees in markets where information about prices is costly. Under some conditions the conventional explanation of price-matching announcements as facilitating collusion finds support, and is even strengthened. But our model provides an additional explanation for the practice. A price-matching guarantee may be a credible and easily understood means of communicating to uninformed consumers that a firm is low-priced. The credibility of the signal to uninformed consumers is assured by the behaviour of informed consumers. We contrast the testable implications of our model with those of the anticompetitive theories and discuss supportive evidence from an illustrative sample of retailers.
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  • Sridhar Moorthy & Ralph A. Winter, 2006. "Price‐matching guarantees," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 449-465, June.
    • Handle: RePEc:bla:randje:v:37:y:2006:i:2:p:449-465
    DOI: j.1756-2171.2006.tb00025.x
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    Cited by:

    1. Dmitri Kuksov & Ashutosh Prasad & Mohammad Zia, 2017. "In-Store Advertising by Competitors," Marketing Science, INFORMS, vol. 36(3), pages 402-425, May.
    2. Bottasso, Anna & Marocco, Paolo & Robbiano, Simone, 2020. "Price matching and platform pricing," MPRA Paper 104811, University Library of Munich, Germany.
    3. Sneha Bakshi, 2020. "Limits of price competition: cost asymmetry and imperfect information," International Journal of Game Theory, Springer;Game Theory Society, vol. 49(4), pages 913-932, December.
    4. Samir Mamadehussene, 2021. "Measuring the competition effects of price-matching guarantees," Quantitative Marketing and Economics (QME), Springer, vol. 19(3), pages 261-287, December.
    5. Mago, Shakun Datta & Pate, Jennifer G., 2009. "An experimental examination of competitor-based price matching guarantees," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 342-360, May.
    6. Budzinski Oliver & Köhler Karoline Henrike, 2015. "Is Amazon The Next Google?," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 66(1), pages 263-288, January.
    7. Trost, Michael, 2021. "The collusive efficacy of competition clauses in Bertrand Markets with capacity-constrained retailers," Hohenheim Discussion Papers in Business, Economics and Social Sciences 04-2021, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    8. Benny Mantin & Daniel Granot & Frieda Granot, 2011. "Dynamic pricing under first order Markovian competition," Naval Research Logistics (NRL), John Wiley & Sons, vol. 58(6), pages 608-617, September.
    9. Arcan Nalca & Tamer Boyaci & Saibal Ray, 2010. "Competitive price-matching guarantees under imperfect store availability," Quantitative Marketing and Economics (QME), Springer, vol. 8(3), pages 275-300, September.
    10. Juncai Jiang & Chuan He, 2021. "Low-Price Guarantees in a Dual Channel of Distribution," Marketing Science, INFORMS, vol. 40(4), pages 765-782, July.
    11. Pavel Kireyev & Vineet Kumar & Elie Ofek, 2017. "Match Your Own Price? Self-Matching as a Retailer’s Multichannel Pricing Strategy," Marketing Science, INFORMS, vol. 36(6), pages 908-930, November.
    12. Il-Horn Hann & Kai-Lung Hui & Sang-Yong Tom Lee & Ivan P.L. Png, 2005. "Sales and Promotions: A More General Model," Industrial Organization 0508014, University Library of Munich, Germany.
    13. Trost, Michael, 2022. "Unraveling the spreading pattern of collusively effective competition clauses," Hohenheim Discussion Papers in Business, Economics and Social Sciences 01-2022, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    14. Janssen, Maarten C.W. & Parakhonyak, Alexei, 2013. "Price matching guarantees and consumer search," International Journal of Industrial Organization, Elsevier, vol. 31(1), pages 1-11.
    15. Kim, Byung-Cheol & Ahmed, Mishal, 2020. "Price-match guarantees and investment incentives," Information Economics and Policy, Elsevier, vol. 53(C).
    16. Juncai Jiang & Nanda Kumar & Brian T. Ratchford, 2017. "Price-Matching Guarantees with Endogenous Consumer Search," Management Science, INFORMS, vol. 63(10), pages 3489-3513, October.
    17. Bing Jing, 2018. "Showrooming and Webrooming: Information Externalities Between Online and Offline Sellers," Marketing Science, INFORMS, vol. 37(3), pages 469-483, May.

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