Abstract:

With the development of the e-commerce， it is common for consumers to compare prices on multiple channels. In order to eliminate consumers' doubts about high prices and attract more consumers， competitive price-matching policy， which can influence consumers' purchasing decisions， is favored by some inferior retailers in asymmetric competition （i.e.， Dangdang， Suning and Gome etc.）. When one retailer offers competitive price-matching policy， consumers can apply to the retailer for price difference compensation if they find a lower retail price within a certain period of time and within a certain area after purchasing the product. The existing literature has a theoretical gap in how an inferior retailer should adopt competitive price-matching policy in asymmetric competition with a superior retailer， which motivates us to ask the following research question： First， under what market conditions can the inferior retailer obtain greater profits by adopting competitive price-matching policy？ Does the superior retailer benefit from the inferior retailer's competitive price-matching policy？ Second， how do the structure of consumers， the market stimulus effect of the policy， and the cost of price-matching affect the conditions under which the inferior retailer adopts competitive price-matching policy？ Third， how will the equilibrium price and profit of the inferior and superior retailers， and consumer welfare change after the inferior retailer adopts the policy？ To address these questions， it is considered that the market is consisting of two types of consumers， i.e.， switchers and loyals， and a game-theoretical model is developed based on Hotelling model to study the price competition between an inferior retailer and a superior retailer. The scenarios of non-adoption and adoption of competitive price-matching policy by the inferior retailer （i.e.， scenario N and scenario M） is analyzed.The research results show that the competitive price-matching policy has a competition-dampening effect， which will increase the price of the inferior retailer and the average market price. The possibility of the two retailers colluding to reach the same price increases with the proportion of consumers who request refunds. Whether the inferior retailer can benefit from the policy depends on the structure of consumers， the policy's market stimulus effect and the price-matching cost， and the superior retailer may either benefit or suffer from the policy. In addition， the policy does not always hurt consumer welfare. From the perspective of consumer structure， the mechanism and conditions of an inferior retailer adopting competitive price-matching policy to improve the competition situation are discussed. In other words， the main contribution of this study is to explain why inferior retailers are more aggressive in adopting competitive price-matching policy， and analyze how consumer structure， the policy's market stimulus effect， and price-matching cost jointly affect the equilibrium prices， and the conditions under which the two retailers and consumers can benefit from the policy. The results provide guidance for inferior retailers on whether or not adopting competitive price-matching policy and how to decide on the retail price under the policy. Specifically， inferior retailers should decide whether to adopt competitive price-matching policy based on market structure and cost. After adopting the policy， they should strengthen publicity to expand the market promotion effect of the policy， and establish a refund application review system to reduce refund costs. In addition， consumers should not put too much faith in competitive price-matching policy.

Key words: competitive price-matching policy, asymmetric competition, inferior retailer, consumer structure, Hotelling model