First Version: Nov 2014

Updated: Sep 2018

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Price Match Guarantees in the Age of Showrooming: An Empirical Analysis

Abstract

Consumer showrooming -- the behavior of examining a product in a brick-and-mortar store and later buying it from an online retailer -- is seen as a major threat to brick-and-mortar retailers. To combat showrooming, Best Buy announced a price-matching policy in 2012 to compete with major online retailers. In this paper, we examine the impact of Best Buy's price-matching policy on the price competition between Best Buy and Amazon across a wide variety of product categories. We empirically explore Best Buy's and Amazon's pricing patterns using unique datasets collected from different sources, and find robust results that the competitive effect of the price-matching policy depends on the showrooming value of a product. For those products that offer consumers large value from physical-store experiences -- i.e., the "showrooming products" -- the policy led to more intense price competition. Moreover, Amazon cut prices more aggressively than Best Buy. For those products that offer relatively small showrooming value -- i.e., the "non-showrooming products" -- it alleviated price competition. We also provide theoretical explanations for the findings and illustrate why the price matching policy did not reduce the price gaps between Amazon and Best Buy.

Keywords: Showrooming, Price matching, E-commerce, Price competition