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Failing to Suspect Collusion in Price-Matching Guarantees: Consumer Limitations in Game-Theoretic Reasoning

Author

Listed:
  • Subimal Chatterjee

    (School of Management - Binghamton University [SUNY] - SUNY - State University of New York)

  • Timothy B. Heath

    (Miami University - MU - Miami University [Ohio])

  • Suman Basuroy

    (School of Management - SUNY Buffalo - University at Buffalo [SUNY] - SUNY - State University of New York)

Abstract

Marketers often commit to matching competitors' prices by offering price-matching guarantees (PMGs). Theory, however, shows that PMGs can either foster price competition and lower market prices or facilitate price collusion and raise market prices. In 3 experiments, we tested if consumers suspect collusion in such tactics and if this suspicion in turn affects their preferences for PMGs. Experiment 1 showed that consumers prefer markets where sellers offer PMGs over those that do not, suggesting little or no suspicion of collusion. Experiment 2 replicated these findings and extended them by showing that although most consumers prefer PMG markets, consumers higher in need for cognition (NFC) do, consistent with the greater suspicion hypothesized, prefer PMG markets more weakly. However, this weakened preference emerged from concerns over lower product quality in PMG markets more so than expectations of unduly high prices. Experiment 3 then tested the collusive potential of PMGs by placing participants in the role of a government regulator charged with finding collusion in various markets. Regardless of explicit primes and NFC, participants perceived PMGs as competitive devices that reduce prices rather than collusive devices that raise them. In contrast to the assumptions underlying game-theoretic models, consumers often lack the strategic sophistication necessary to detect the collusive potential of PMGs, a limitation that implicates legislation to moderate the use of such devices.

Suggested Citation

  • Subimal Chatterjee & Timothy B. Heath & Suman Basuroy, 2003. "Failing to Suspect Collusion in Price-Matching Guarantees: Consumer Limitations in Game-Theoretic Reasoning," Post-Print hal-00668854, HAL.
  • Handle: RePEc:hal:journl:hal-00668854
    DOI: 10.1207/S15327663JCP1303_07
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    Citations

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    Cited by:

    1. Haruvy, Ernan & Popkowski Leszczyc, Peter T.L., 2016. "Measuring the Impact of Price Guarantees on Bidding in Consumer Online Auctions," Journal of Retailing, Elsevier, vol. 92(1), pages 96-108.
    2. Dutta, Sujay & Bhowmick, Sandeep, 2009. "Consumer responses to offline and online low price signals: The role of cognitive elaboration," Journal of Business Research, Elsevier, vol. 62(6), pages 629-635, June.
    3. Ho, Hillbun (Dixon) & Ganesan, Shankar & Oppewal, Harmen, 2011. "The Impact of Store-Price Signals on Consumer Search and Store Evaluation," Journal of Retailing, Elsevier, vol. 87(2), pages 127-141.
    4. Koh, Dong-Hee & Moon, Junyean & Schellhase, Ralf, 2012. "Price-matching guarantees: Influences on pricing strategy in a market with asymmetric firms," Journal of Business Research, Elsevier, vol. 65(11), pages 1551-1557.
    5. Dewenter Ralf & Schwalbe Ulrich, 2016. "Preisgarantien im Kraftstoffmarkt," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(3), pages 276-288, September.
    6. Waheed Kareem Abdul, 2023. "Probing permanent price reduction strategy of manufacturer brands: pre- and post-purchase perceptions," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 22(6), pages 455-469, December.
    7. Kukar-Kinney, Monika, 2006. "The role of price-matching characteristics in influencing store loyalty," Journal of Business Research, Elsevier, vol. 59(4), pages 475-482, April.
    8. Dutta, Sujay, 2012. "Vulnerability to Low-Price Signals: An Experimental Study of the Effectiveness of Genuine and Deceptive Signals," Journal of Retailing, Elsevier, vol. 88(1), pages 156-167.

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