The price-matching dilemma

Evangelos Constantinou, Dan Bernhardt

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)97-113
Number of pages17
JournalInternational Journal of Industrial Organization
Volume59
DOIs
StatePublished - Jul 2018

Keywords

  • Branded goods
  • Generic goods
  • Price-matching guarantees
  • Prisoner's dilemma

ASJC Scopus subject areas

  • Industrial relations
  • Aerospace Engineering
  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management
  • Industrial and Manufacturing Engineering

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