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

Subimal Chatterjee (), Timothy B. Heath and Suman Basuroy
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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

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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.

Keywords: price-matching guarantees; collusion; consumer limitations; game-theoretic reasoning (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (8)

Published in Journal of Consumer Psychology, 2003, vol. 13, issue 3, p. 255-267. ⟨10.1207/S15327663JCP1303_07⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00668854

DOI: 10.1207/S15327663JCP1303_07

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