Black Friday

I was watching the 9 pm news on Fox last night. Sandy Riesgraf was doing a live shoot from a Wal-Mart parking lot in Taylorsville (?) talking about Wal-Mart's Black Friday deals.

Wal-Mart is offering to match any competitor's price on any item Wal-Mart sells. Sandy was telling us how great this is for consumers.

But is it?

Think here about how such price-matching commitments --- which are commonly referred to as "most favored customer clauses" --- might affect the incentives for Wal-Mart's competitors to offer discounts in the first place.

Firms discount because they are trying to steal business from rivals. But if Target, for example, knows that customers will just take Target's advertisement to Wal-Mart and Wal-Mart will match the price, then Target doesn't gain when it offers a discount. It hasn't stolen any customers from Wal-Mart as a result of offering the discount.

So the only effect of Target's discount is to give a lower price to the customers who would have shopped at Target anyway. No business-stealing happens, and so there's no benefit to offering a discount.

So, they don't. This means that consumers don't benefit from most favored customer clauses... But you have to think all the way through firms' strategic choices to see why.