Last month, The Economist published a column 1 which alleged that store “guarantees to match competitors’ prices” actually hurt consumers.
Paribus begs to differ — see our response below.
To the Editor –
I found your recent article, “Guaranteed profits – Price-match guarantees prevent rather than provoke price wars” interesting, but I believe that there are at least two missing elements that your readership should consider:
First, the assumption that retailers are seeking to maximize profit is problematic. Stores have repeatedly signaled that they are not seeking to maximize profit — look no further than Amazon, which has earned just $1.9 billion in cumulative profit in its entire 20 year existence. It reportedly employs several employees who are tasked with making sure that the company earns as close to zero profit as possible — so that the store can maximize its growth in marketshare. Other stores are on this path as well, including upstart Jet.com.
Second, the conclusion of the piece is accurate, but only for reasons left out of the article entirely. When consumers are led to believe that they “don’t have to shop around” (whether though a price match policy or otherwise), they really do shop around less. But this is because the monstrous hassle of tracking, comparing and filing for price match adjustments leaves most consumers unable or unwilling to seek their price match guarantees, even when they are eligible. It is estimated by at least one Wall Street analyst that only 3% of people, at most, use price-matching programs. 2
But consider one new possibility – what if consumers were armed with perfect information at all times, and could automatically make their claim each and every time that they were eligible? Consumers would be far better off.
In a competitive market where stores compete vigorously, price guarantees would be an effective mechanism to push prices down and increase consumer surplus.
This is not just theory anymore. Indeed, breakthroughs in technology are making this possible for consumers today. Thousands already have automated price adjustments and price matching, and I firmly believe that with technology, these very policies will dramatically improve the wealth of consumers.
Co-Founder and CEO