Unifying or discriminating: Competitive pricing strategies for multi-channel retailers

Abstract

Multi-channel retailers face a crucial decision of whether to charge the same price online and offline. To examine the competitive pricing strategy, we construct a duopoly model with two multi-channel retailers for which consumers are heterogeneous in their brand preferences. Additionally, consumers have heterogeneous product familiarity and are categorized into informed and uninformed segments. While informed consumers are aware of desirable product variants, uninformed consumers may purchase unfit variants and subsequently return them, which incurs return costs for both themselves and the retailer. Therefore, retailers offer store assistance to help uninformed consumers find their matching products. Our analysis reveals that the equilibrium pricing structure is influenced by two effects: the channel-efficiency effect drives the adoption of uniform pricing when a retailer’s store assistance cost is efficient, while the competition effect drives dual pricing when consumers exhibit weak brand preferences and uniform pricing otherwise. The interaction of these effects leads to both symmetric and asymmetric pricing equilibria. In particular, an asymmetric pricing equilibrium emerges when the channel-efficiency effect favors uniform pricing and the competition effect is significant, and at this asymmetric equilibrium, the uniform pricing retailer can outperform its dual pricing rival by offering a uniform price lower than the online and offline prices of the rival.