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The price-matching dilemma

Evangelos Constantinou and Dan Bernhardt ()

International Journal of Industrial Organization, 2018, vol. 59, issue C, 97-113

Abstract: We characterize when strategic considerations of stores to match prices set by rivals on branded goods devolve into a prisoner’s dilemma. We consider a setting where stores also offer generic products, creating incentives to raise prices for branded goods that compete with generics—to shift consumer purchases toward more profitable generics. Price-matching guarantees commit stores not to set high prices for branded goods, thereby attracting more shoppers. When shopping price-elasticities are sufficiently high, a prisoner’s dilemma results.

Keywords: Price-matching guarantees; Prisoner’s dilemma; Branded goods; Generic goods (search for similar items in EconPapers)
JEL-codes: L11 L13 L15 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:indorg:v:59:y:2018:i:c:p:97-113