Price–Matching Guarantees in the age of algorithms: a model of collusion, discrimination and the welfare trade-off

The paper revisits Price Matching Guarantees (PMGs) in the context of online oligopolies that monitor rivals’ prices through real-time algorithms and infer consumer elasticities from User-Generated Contents (UGCs). Building on a dynamic repeated-game framework with homogeneous versus heterogeneous marginal costs, it is shown that PMGs sustain tacit collusion when costs are identical but generate algorithmic price discrimination when costs differ. Monte Carlo simulations confirm the analytical results and quantify the welfare effects under alternative regulatory regimes. While automatic refund mandates eliminate discriminatory rents without suppressing competitive pricing, blunt PMGs bans sacrifice legitimate insurance benefits for elastic consumers. The findings highlight the need for process-based rather than structural antitrust remedies in data-rich digital markets.