Price-match guarantees and investment incentives
Byung-Cheol Kim and
Mishal Ahmed ()
Information Economics and Policy, 2020, vol. 53, issue C
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.
Keywords: Price-match guarantees; Duopoly competition; Investment incentives (search for similar items in EconPapers)
JEL-codes: D4 L13 L4 M2 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:53:y:2020:i:c:s0167624520301359
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