Group for Research in Decision Analysis

Manufacturer’s perspective on retailer’s price-matching guarantees

Arcan Nalca Queen's Smith School of Business, Canada

Many retailers offer price-matching guarantees whereby they promise customers that any lower price offered by competition for an identical product will be matched. The extant literature on price matching uses the consumers and retailers lens to identify incentives and implications. Upper stream supply chain members are typically neglected and assumed to be passive players. In this paper, we switch the lens and look at retailer’s price matching from the manufacturer’s perspective. We identify market conditions under which a manufacturer benefits/hurts from retailer’s price matching. To that end, surprisingly, we find that the enforcement of Robinson-Patman Act in an industry may reduce the consumer’s surplus by enabling tacit collusion between retailers via price-matching guarantees.

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