4 ms·

Here's what I don't get. Why do a price match guarantee? Why not just price your items lower? Or do a "match" where you guarantee every item for 10 cents cheape

Here's what I don't get. Why do a price match guarantee? Why not just price your items lower? Or do a "match" where you guarantee every item for 10 cents cheaper than your competitors?

Nightshaxx 9y ago
Because not only can advertise your price matching feature and get more customers, but you charge your normal prices to the 90% of people who don't bother to price match. Basically you can have your cake and eat it too. (To some extent)
- frgtpsswrdlame 9y ago
  Doesn't that seem like some form of tacit collusion though? In this case it seems the price match flips the competitive environment so that competitors raise prices instead of lowering them.
robertcope 9y ago
I agree with you. Many of my racing friends get prices online and then have Discount Tire price match. I think that's stupid. I'd rather support the vendor that prices things "right" in the first place.
JumpCrisscross 9y ago
> Why do a price match guarantee? Why not just price your items lower? MAD [1]. Price-match guarantees are meant to deter price competition. If you cut your price below a price-matching competitor's, the time you have the best price will be short. After that, less profit for everyone (assuming similar cost structures). If, on the other hand, you match, everyone keeps their market share and margins. Price competition in a price-matching market happens when someone has lower costs. It also happens when someone uses cheap capital to buy market share, intending to make up for lower margins with volume, e.g. to cover fixed costs. [1] https://en.wikipedia.org/wiki/Mutual_assured_destruction https://en.wikipedia.org/wiki/Mutual_assured_destruction
- frgtpsswrdlame 9y ago
  Don't we want companies to engage in price competition though? Especially in a market with network effects which is dominated by a few large players.
  - qeternity 9y ago
    What OP is saying is that this isn't competitive, rather it's a way to signal to other participants not to cut their prices. They can't do this outright because that would be collusion and violate anti-trust laws. OP referenced MAD which is the cold war tactic of mutually assured destruction. Basically, if you nuke me I nuke you back and we all die...so nobody nukes anyone. This is the same but with price competition. If you cut your prices to try to gain market share, I'll cut mine too. You'll gain no market share but you will lose revenue.
  - mcphage 9y ago
    > Don't we want companies to engage in price competition though? As consumers, absolutely we do. But the person asking the question asked why companies don't do that, and the answer is that it's a bad business decision for them.
  - JumpCrisscross 9y ago
    > Don't we want companies to engage in price competition...? The literature is mixed on the effects of price-matching guarantees [1][2]. The most compelling resolution I've read says "price-matching guarantees can facilitate monopoly pricing only if firms automatically match prices. If consumers must instead request refunds (thereby incurring hassle costs)...any increase in equilibrium prices due to firms’ price-matching policies will be small; often, no price increase can be supported" [3]. In any case, enforcing an automatic price-matching ban would be difficult. Would you prohibit firms from lowering their prices to match competitors'? If not, it would just take a few turns of the ratchet to send the message to would-be competitors (and consumers). Whether the consumer surplus from those ratchet turns are worth the enforcement cost is an open question. [1] https://www.bauer.uh.edu/jhess/documents/10.pdf https://www.bauer.uh.edu/jhess/documents/10.pdf [2] http://people.tamu.edu/~sjain/papers/published%20pmr%20paper.pdf http://people.tamu.edu/~sjain/papers/published%20pmr%20paper... [3] http://www.simon.rochester.edu/fac/SHAFFER/Published/Hassel%20Costs.pdf http://www.simon.rochester.edu/fac/SHAFFER/Published/Hassel%...
elahd 9y ago
Agreed. Prices being equal, why would I go with eBay? Their customer service and return policies are awful. It's 10x worse if you pay through PayPal. Amazon is basically no questions asked.
- SparkyMcUnicorn 9y ago
  Return policies are per vendor. With eBay, it's almost too easy to get your money back and sellers take the hit when it isn't their fault. In order of easiest returns: "Sold and shipped by Amazon" -> eBay -> Amazon 3rd party vendors.
  - elahd 9y ago
    Correct. By "Amazon," I meant "Shipped and Sold by Amazon." Their Marketplace ecosystem is almost as bad as eBay.
dheera 9y ago
Speaking of which I wonder if eBay will price-match the 5% cashback I get on all Amazon purchases. No? I'll stick to Amazon then.

Here's what I don't get. Why do a price match guarantee? Why not just price your items lower? Or do a "match" where you guarantee every item for 10 cents cheaper than your competitors?

Nightshaxx 9y ago

Because not only can advertise your price matching feature and get more customers, but you charge your normal prices to the 90% of people who don't bother to price match. Basically you can have your cake and eat it too. (To some extent)

frgtpsswrdlame 9y ago
Doesn't that seem like some form of tacit collusion though? In this case it seems the price match flips the competitive environment so that competitors raise prices instead of lowering them.

robertcope 9y ago

I agree with you. Many of my racing friends get prices online and then have Discount Tire price match. I think that's stupid. I'd rather support the vendor that prices things "right" in the first place.

JumpCrisscross 9y ago

> Why do a price match guarantee? Why not just price your items lower? MAD [1]. Price-match guarantees are meant to deter price competition. If you cut your price below a price-matching competitor's, the time you have the best price will be short. After that, less profit for everyone (assuming similar cost structures). If, on the other hand, you match, everyone keeps their market share and margins. Price competition in a price-matching market happens when someone has lower costs. It also happens when someone uses cheap capital to buy market share, intending to make up for lower margins with volume, e.g. to cover fixed costs. [1] https://en.wikipedia.org/wiki/Mutual_assured_destruction https://en.wikipedia.org/wiki/Mutual_assured_destruction

frgtpsswrdlame 9y ago
Don't we want companies to engage in price competition though? Especially in a market with network effects which is dominated by a few large players.
- qeternity 9y ago
  What OP is saying is that this isn't competitive, rather it's a way to signal to other participants not to cut their prices. They can't do this outright because that would be collusion and violate anti-trust laws. OP referenced MAD which is the cold war tactic of mutually assured destruction. Basically, if you nuke me I nuke you back and we all die...so nobody nukes anyone. This is the same but with price competition. If you cut your prices to try to gain market share, I'll cut mine too. You'll gain no market share but you will lose revenue.
- mcphage 9y ago
  > Don't we want companies to engage in price competition though? As consumers, absolutely we do. But the person asking the question asked why companies don't do that, and the answer is that it's a bad business decision for them.
- JumpCrisscross 9y ago
  > Don't we want companies to engage in price competition...? The literature is mixed on the effects of price-matching guarantees [1][2]. The most compelling resolution I've read says "price-matching guarantees can facilitate monopoly pricing only if firms automatically match prices. If consumers must instead request refunds (thereby incurring hassle costs)...any increase in equilibrium prices due to firms’ price-matching policies will be small; often, no price increase can be supported" [3]. In any case, enforcing an automatic price-matching ban would be difficult. Would you prohibit firms from lowering their prices to match competitors'? If not, it would just take a few turns of the ratchet to send the message to would-be competitors (and consumers). Whether the consumer surplus from those ratchet turns are worth the enforcement cost is an open question. [1] https://www.bauer.uh.edu/jhess/documents/10.pdf https://www.bauer.uh.edu/jhess/documents/10.pdf [2] http://people.tamu.edu/~sjain/papers/published%20pmr%20paper.pdf http://people.tamu.edu/~sjain/papers/published%20pmr%20paper... [3] http://www.simon.rochester.edu/fac/SHAFFER/Published/Hassel%20Costs.pdf http://www.simon.rochester.edu/fac/SHAFFER/Published/Hassel%...

elahd 9y ago

Agreed. Prices being equal, why would I go with eBay? Their customer service and return policies are awful. It's 10x worse if you pay through PayPal. Amazon is basically no questions asked.

SparkyMcUnicorn 9y ago
Return policies are per vendor. With eBay, it's almost too easy to get your money back and sellers take the hit when it isn't their fault. In order of easiest returns: "Sold and shipped by Amazon" -> eBay -> Amazon 3rd party vendors.
- elahd 9y ago
  Correct. By "Amazon," I meant "Shipped and Sold by Amazon." Their Marketplace ecosystem is almost as bad as eBay.

dheera 9y ago

Speaking of which I wonder if eBay will price-match the 5% cashback I get on all Amazon purchases. No? I'll stick to Amazon then.