The Altruism Paradox: How Retailer Concern for Consumer Welfare Shapes Supplier Encroachment and Price Matching

E-commerce enables suppliers to bypass traditional retailers and sell directly to consumers, but such encroachment intensifies channel competition. Although price matching commitments can mitigate this conflict, their strategic role has primarily been studied under the assumption of profit-maximizing retailers. We develop a game-theoretic model to examine how a retailer’s valuation of consumer surplus alongside accounting profit affects a supplier’s pricing choice and direct-channel sales. The supplier chooses whether to adopt an exact commitment to match the retailer’s price. We show that the supplier adopts price matching only when the retailer’s weight on consumer surplus is sufficiently large and the direct-selling cost falls within an intermediate range. Under supplier-preferred selection among retail-only pricing equilibria and without a fixed entry cost, the supplier opens the direct channel throughout the maintained cost range. Under this selection, the price matching option changes the pricing arrangement rather than the entry decision. Greater retailer altruism improves consumer surplus and social welfare within each conditional outcome yet can lower either measure in equilibrium by inducing the supplier to adopt matched pricing or stop direct sales while retaining unmatched pricing. This interaction can give rise to an altruism paradox. Numerical extensions show that welfare losses can persist with positive entry costs or asymmetric channel demand. These findings offer implications for retailers that value consumer surplus alongside profit and suppliers considering direct-to-consumer expansion.