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

Multichannel retailing has created several new strategic choices for firms. With respect to pricing, an important decision is whether to offer a "self-matching policy." Self-matching allows a multichannel retailer to offer the lowest of its online and in-store prices to consumers. In practice, we observe considerable heterogeneity in self-matching policies: there are firms that offer to self-match and firms that explicitly state 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, a mixed duopoly comprised of a multichannel retailer competing with a pure e-tailer, as well as two competing multichannel retailers. Even though self price matching is likely to reduce a retailer's profits, with some consumers paying the lower price, we uncover two novel mechanisms that can make self-matching profitable in a duopoly setting. Specifically, self-matching can dampen competition, both online and in-store, and its effectiveness in this respect depends on the decision-making stage of various consumers and the heterogeneity of their preference for the online vs. store channels. Surprisingly, self-matching strategies can also be profitable when stores face consumers using smartphones to discover online prices. Our findings provide insights for managers on how and when self-matching can be an effective pricing strategy to embrace.