Low-Price Guarantees in a Dual Channel of Distribution

Juncai Jiang () and Chuan He ()
Additional contact information
Juncai Jiang: Department of Marketing, Pamplin College of Business, Virginia Tech, Blacksburg, Virginia 24061
Chuan He: Department of Marketing, Leeds School of Business, University of Colorado, Boulder, Colorado 80309

Marketing Science, 2021, vol. 40, issue 4, 765-782

Abstract: Manufacturers routinely rely on retailers to reach potential customers. Concurrently, they often offer low-price guarantees (LPGs) to customers who purchase through their direct channel; that is, should consumers find a lower price from distribution partners, manufacturers promise to match or even beat the lower price. Many manufacturers, such as Apple, Dell, Hewlett-Packard, Lenovo, and Goodyear, use price-matching guarantees (PMGs) against retailers. In the online travel industry, price-beating guarantees (PBGs) are prevalent among travel suppliers. In this paper, we develop a game-theoretic model to investigate the manufacturer’s optimal choice of LPG policies and its implications for the manufacturer, retailer, and channel. Our analysis demonstrates that no LPG, PMG, and PBG can each emerge in equilibrium depending on consumer characteristics. Although LPGs can improve channel profit, they may benefit the manufacturer at the expense of the retailer. As such, LPGs can intensify vertical channel conflict. However, both horizontal channel conflict and vertical channel conflict are present in dual channels. LPGs are not merely price discrimination devices; they mitigate horizontal channel conflict. The benefit of LPGs in reducing horizontal channel conflict outweighs the loss from intensified vertical channel conflict under a wide range of conditions. Therefore, LPGs serve as channel coordination devices.

Keywords: low-price guarantee; price-matching guarantee; price-beating guarantee; dual marketing channels; horizontal channel conflict; game theory (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://dx.doi.org/10.1287/mksc.2020.1272 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormksc:v:40:y:2021:i:4:p:765-782

Access Statistics for this article

More articles in Marketing Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().