Price-Matching Guarantees with Endogenous Search: A Market Experiment Approach

Abstract

Price-matching guarantees are commonly used by sellers as promises to match the lowest price for an item that a customer can find elsewhere. In this paper, we use a market experiment approach to examine buyer search as well as sellers’ pricing decisions in the presence versus absence of Price-Matching Guarantees. We use student subjects as well as real consumers in an interactive laboratory setting to trade with each other, acting as buyers and sellers. Our findings from two experiments indicate that when searchers’ demand is more elastic than non-searchers, PMGs can result in more intense price competition, even when sellers are symmetric. Price-Matching sellers benefit from converting more consumers into searchers who buy a larger quantity at a lower price. The lower (average) market prices also benefit buyers. These implications should be of great interest to researchers, practitioners, and public policymakers.