Mingyao Sun

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.

Global retail e-commerce sales have surged, yet product fit uncertainty remains a significant challenge, leading to rising product return rates. To address consumer concerns about return shipping costs, major Chinese online retail platforms have introduced return shipping insurance (RSI). Retailers can choose between Retailer-RSI (RRSI), which is provided by the retailer, and Customer-RSI (CRSI), which is purchased by consumers. Despite these options, information asymmetry causes insurers to assess return rates with bias—referred to as managerial confidence bias. Consequently, platforms are increasingly partnering with insurers to enhance their RSI offerings. This study develops a game-theoretical model to examine the dynamics between a platform and an insurer, as well as the impact of managerial confidence bias on RSI strategies. Our analysis reveals that the platform–insurer relationship is crucial in determining the optimal RSI strategy. Under an independent insurer, RSI is viable only if the insurer underestimates product return rates (i.e., exhibits overconfidence bias); RRSI is preferred if the bias is sufficiently strong, whereas CRSI is chosen otherwise. In contrast, under a dependent insurer, CRSI is favored by the retailer only when its return handling costs are substantially high; otherwise, RRSI is preferred. Furthermore, RSI consistently increases consumer surplus by reducing return hassle costs while only mildly raising the product price. However, the independent insurer’s bias leads to its own profit loss, resulting in a “loss–win–win–win” scenario across stakeholders. In contrast, the dependent insurer, supported by platform subsidies, can yield a “win–win–win–win” outcome that aligns stakeholder interests and enhances long-term platform benefits.