Combined performances of offline seller’s price matching and online seller’s return compensation

Abstract In response to the challenges posed by online–offline competition, many offline sellers have implemented price matching, allowing customers to pay a competitor’s lower price for the same product. Meanwhile, online sellers have offered return compensation to offset the inconvenience of product returns. Drawing inspiration from these retail practices, this study develops a duopoly game, where an online seller and an offline seller retail an identical item, to examine the interaction between return compensation and price matching. The findings indicate that, when the number of customers seeking price matching and the travel cost of arriving brick-and-mortar (BM) store are high, the offline seller should conduct price matching regardless of the online seller’s return compensation strategy. Conversely, the online seller should only offer return compensation when the offline seller engage in price matching and the travel cost of arriving BM store is significant. However, both price matching and return compensation have the potential to result in a win–win situation for the two sellers. Furthermore, our sensitivity analysis reveals that price matching enables the online seller to derive benefits from offering higher compensation amount.