Strategic pricing: examining the impact of showrooming behaviour on manufacturer-retailer dynamics in a supply chain

We study a two-stage supply chain where a manufacturer sells through two competing retailers: a brick-and-mortar retailer and an online retailer. Using a Stackelberg game model, we examine the manufacturer's wholesale price and the BM retailer's sales effort decisions in the presence of customers' showrooming behaviour. We analyse how the availability of price-matching guarantees affects two product categories: 'non-showrooming' and 'showrooming'. Our findings show that price-matching strategy enhances the BM retailer's sales effort, the manufacturer's profit, and overall supply chain profitability for non-showrooming products, but is ineffective for showrooming products. For non-showrooming products, price-matching guarantee complements sales effort, with the manufacturer lowering its wholesale price to encourage more sales effort. For showrooming products, price-matching guarantees substitutes for sales effort, with the manufacturer's aggressive pricing discouraging sales efforts. Therefore, we recommend universally offering price-matching guarantees for non-showrooming products and restricting them to customer requests for showrooming products.