Competitive price-matching guarantees under imperfect store availability

Nalça, Arcan; Boyacı, Tamer; Ray, Saibal

doi:10.1007/s11129-010-9080-1

Cited by 21 publications

(4 citation statements)

References 26 publications

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“…Nowadays, a detailed look at the fine print of PMGs reveals conditions such as the rival needing to be an authorized dealer, the stock keeping unit (SKU) of the product must be the same, and the product must be available in stock. Consequently, there has been interest in the Production and Operations Management operations management literature to investigate the impact of these conditions (Nalca et al, 2010(Nalca et al, , 2013(Nalca et al, , 2020.…”

Section: Literature Reviewmentioning

confidence: 99%

Interaction between manufacturer's wholesale pricing and retailers' price‐matching guarantees

Nalca,

Cai

2023

Production and Operations Management

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In practice, many retailers employ price‐matching guarantees (PMGs), committing to meet the price of an identical product at a competitor's outlet. Despite the profound linkage between retailers and manufacturers, existing literature has predominantly explored retailers' PMGs without contemplating the influence of manufacturers' wholesale pricing strategies. Employing a supply chain model comprising one manufacturer and two retailers, we scrutinize the implications of wholesale pricing—uniform or discriminatory—on supply chain members and consumers when retailers have the option to extend PMGs. Our analysis uncovers that retailers refrain from offering PMGs when the manufacturer is granted the discretion to set discriminatory wholesale prices—even if such offers align with the manufacturer's preferences. Conversely, under uniform wholesale pricing, PMGs thrive at equilibrium—even if the manufacturer opposes the practice—as long as the degree of demand or cost asymmetry between retailers and average hassle costs remains relatively modest. Although firms' preferences regarding PMGs vary, a Pareto zone exists where all entities prefer that either the efficient retailer under demand asymmetry or the inefficient retailer under cost asymmetry extends the PMG. Despite the potential advantages of PMGs for the more efficient retailer, the enforcement of uniform wholesale pricing diminishes supply chain profit, consumer welfare, and overall social welfare. The detrimental impacts on welfare owing to the imposition of uniform wholesale pricing persist, even amid the presence of hassle costs associated with price matching. Our findings thus instigate a dialogue for policymakers concerning the validity of regulating wholesale pricing when PMGs are in effect.

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Section: Literature Reviewmentioning

confidence: 99%

Interaction between manufacturer's wholesale pricing and retailers' price‐matching guarantees

Nalca,

Cai

2023

Production and Operations Management

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“…Some examples of the former include store-level pricing (Chintagunta et al , 2003; Khan and Jain, 2005; Montgomery, 1997), demographic-based pricing (Frank et al , 2014; Gary-Bobo and Larribeau, 2004), motivation-based pricing (Lee et al , 2013), lifestyle-based pricing (Bruwer and Li, 2017), knowledge-based pricing (Barrutia and Espinosa, 2014), targeted advertising/promotion (Esteves and Resende, 2016; Sayman and Hoch, 2014), behavior-based price discrimination (Caillaud and De Nijs, 2014; Conitzer et al , 2012; Shin and Sudhir, 2010) and situational/contextual price discrimination (Wakefield and Inman, 2003). Examples for the latter include the use of warranties (Soberman, 2003; Chu and Chintagunta, 2011), quantity discounts (Khan and Jain, 2005; Cohen, 2008; Subramaniam and Gal-Or, 2009), multi-period pricing (Geng et al , 2007), coupons (Anderson and Song, 2004; Dhar and Hoch, 1996; Narasimhan, 1984; Shaffer and Zhang, 1995), price promotions (Empen et al , 2015), price matching/price difference refund policies (Jain and Srivastava, 2000; Nalca et al , 2010; Nalca et al , 2013), bonus buys (Dhar and Hoch, 1996; Cui et al , 2008), rebates (Chen et al , 2005; Lu and Moorthy, 2007), probabilistic product offerings (Fay et al , 2015), metering (Gil and Hartmann, 2009) and multiple shipping options (Li and Dinlersoz, 2012).…”

Section: Conceptual Developmentmentioning

confidence: 99%

The impact of discriminatory pricing based on customer risk: an empirical investigation using indirect lending through retail networks

Amaral

Kolsarici

Nediak

2023

EJM

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Purpose The purpose of this study is to understand the profit implications of analytics-driven centralized discriminatory pricing at the headquarter level compared with sales force price delegation in the purchase of an aftermarket good through an indirect retail channel with symmetric information. Design/methodology/approach Using individual-level loan application and approval data from a North American financial institution and segment-level customer risk as the price discrimination criterion for the firm, the authors develop a three-stage model that accounts for the salesperson’s price decision within the limits of the latitude provided by the firm; the firm’s decision to approve or not approve a sales application; and the customer’s decision to accept or reject a sales offer conditional on the firm’s approval. Next, the authors compare the profitability of this sales force price delegation model to that of a segment-level centralized pricing model where agent incentives and consumer prices are simultaneously optimized using a quasi-Newton nonlinear optimization algorithm (i.e. Broyden–Fletcher–Goldfarb–Shanno algorithm). Findings The results suggest that implementation of analytics-driven centralized discriminatory pricing and optimal sales force incentives leads to double-digit lifts in firm profits. Moreover, the authors find that the high-risk customer segment is less price-sensitive and firms, upon leveraging this segment’s willingness to pay, not only improve their bottom-line but also allow these marginalized customers with traditionally low approval rates access to loans. This points out the important customer welfare implications of the findings. Originality/value Substantively, to the best of the authors’ knowledge, this paper is the first to empirically investigate the profitability of analytics-driven segment-level (i.e. discriminatory) centralized pricing compared with sales force price delegation in indirect retail channels (i.e. where agents are external to the firm and have access to competitor products), taking into account the decisions of the three key stakeholders of the process, namely, the consumer, the salesperson and the firm and simultaneously optimizing sales commission and centralized consumer price.

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“…To our knowledge, the literature on the use of low-price guarantees to discriminate among consumers consists of four papers: Png and Hirshleifer (1987), Corts (1997), Chen et al (2001a) and Nalca et al (2010). 9 Like us, these authors assume that some consumers are willing to use the guarantees, while others are not.…”

Section: Related Literaturementioning

confidence: 99%

Optimal low-price guarantees with anchoring

Hviid

Shaffer

2012

Quant Mark Econ

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Many low-price guarantees are offered by small local firms who compete against much larger rivals. The prices of these larger rivals are often set nationally and thus are independent of local market conditions. Our objective in this paper is to explain why small firms in such environments might nevertheless adopt low-price guarantees. We characterize when offering a low-price guarantee is profitable, and assess which form it should take (i.e., conditional on offering a low-price guarantee, should the small firm offer to match or beat its larger competitor's prices). We also assess the implications thereof (i.e., do the low-price guarantees benefit or harm the small firm's customers).

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Competitive price-matching guarantees under imperfect store availability

Abstract: Price-matching guarantees, Competition, Availability, Retail operations, C72, D43, L41,

Cited by 21 publications

References 26 publications

Interaction between manufacturer's wholesale pricing and retailers' price‐matching guarantees

Interaction between manufacturer's wholesale pricing and retailers' price‐matching guarantees

The impact of discriminatory pricing based on customer risk: an empirical investigation using indirect lending through retail networks

Optimal low-price guarantees with anchoring

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