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Price-match guarantees and investment incentives

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  • Kim, Byung-Cheol
  • Ahmed, Mishal

Abstract

We consider duopoly sequential price competition between a low-cost online firm and a high-cost brick-and-mortar firm that decides whether to price-match the low-cost rival. We study how price-match guarantees affect the incentives of both firms to invest in cost reduction and quality enhancement. We find that price-match guarantees in our model weaken these incentives in most cases. Our research reveals more reasons to suspect that seemingly pro-competitive price-matching by many offline rivals to online sellers may have hidden social costs.

Suggested Citation

  • Kim, Byung-Cheol & Ahmed, Mishal, 2020. "Price-match guarantees and investment incentives," Information Economics and Policy, Elsevier, vol. 53(C).
    • Handle: RePEc:eee:iepoli:v:53:y:2020:i:c:s0167624520301359
    DOI: 10.1016/j.infoecopol.2020.100891
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    References listed on IDEAS

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    1. Arbatskaya, Maria & Hviid, Morten & Shaffer, Greg, 2004. "On the Incidence and Variety of Low-Price Guarantees," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 307-332, April.
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    Cited by:

    1. Jiali Qu & Benyong Hu & Chao Meng, 2021. "Joint Innovation Investment and Pricing Decisions in Retail Supply Chains with Customer Value," Sustainability, MDPI, vol. 13(3), pages 1-14, January.

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    More about this item

    Keywords

    Price-match guarantees; Duopoly competition; Investment incentives;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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