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Price-match guarantees and investment incentives

Byung-Cheol Kim and Mishal Ahmed ()

Information Economics and Policy, 2020, vol. 53, issue C

Abstract: 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)
Date: 2020
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DOI: 10.1016/j.infoecopol.2020.100891

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