Match Your Own Price? Self-Matching as a Retailer’s Multichannel Pricing Strategy

Abstract

Multichannel retailing has created several new strategic choices for retailers. With respect to pricing, an important decision is whether to offer a “self-matching policy,” which allows a multichannel retailer to offer the lowest of its online and store prices to consumers. In practice, we observe considerable heterogeneity in self-matching policies: There are retailers who offer to self-match and retailers who explicitly state that they will not match prices across channels. Using a game-theoretic model, we investigate the strategic forces behind the adoption (or non-adoption) of self-matching across a range of competitive scenarios, including a monopolist, two competing multichannel retailers, as well as a mixed duopoly. Though self-matching can negatively impact a retailer when consumers pay the lower price, we uncover two novel mechanisms that can make self-matching profitable in a duopoly setting. Specifically, self-matching can dampen competition online and enable price discrimination in-store. Its effectiveness in these respects depends on the decision-making stage of consumers and the heterogeneity of their preference for the online versus store channels. Surprisingly, self-matching strategies can also be profitable when consumers use “smart” devices to discover online prices in stores. Our findings provide insights for managers on how and when self-matching can be an effective pricing strategy. The online appendix is available at https://doi.org/10.1287/mksc.2017.1035 .