Is “Meet Or Beat” Pricing Anti-Consumer?

The four biggest British supermarket chains all offer some form of price-match guarantee, promising that their customers could not save any money by shopping elsewhere.
--from The Economist

Any savvy, empowered consumer will have a predictable response to claims like "You won't save money by shopping elsewhere." We laugh inwardly and disbelieve. Claims like this work out great for the claimer only if no one actually tests it.

So when a claim like this is made by four separate grocery store chains in the same region at the same time, it's a "what you talkin' bout Willis" moment. [1] A real credulity-stretcher.

Obviously, and by definition, not every store can be the cheapest. But every store benefits by fooling their customers into not checking!

Which takes us to the counterintuitive economics of "meet or beat" pricing.

When a store in your community adopts meet or beat pricing, it sounds at first like a great idea. Theoretically, you always know that you'll get the best price by going there. So, you can just go there.

Wrong! What real-world examples teach us is that meet or beat pricing is inflationary--it actually makes prices go up. In order to see why, though, you have to ask the second order question: And then what?

This is exactly what all the other competing stores in town are asking themselves: How can I compete when I know this meet or beat store will always match or beat my price?

It then becomes game theory situation. The other stores can try and cut prices, but they'll only hurt themselves. Worse, typically, the store adopting meet or beat pricing is usually that market's low-cost provider anyway.

You don't compete on price unless you can compete on price. So, the other stores must compete some other way. Thus the correct game theory response--if you're not the store with the lowest cost structure--is to raise prices. It sounds counterintuitive, but this is actually what happens in any market where one player embraces a meet or beat strategy.

In this case, the market creates its own pricing umbrella, and all the retailers win. At your expense. Your prices go up, even as you think you're getting the best deal in town.


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