It’s Called ‘Price Coherence,’ and It’s Surprisingly Bad for Consumers
HBS Working Knowledge | 23 March 2015
In many markets, a product is offered at the same price regardless of whether it is sold directly by a retailer or through an intermediary. Research by Ben Edelman and Julian Wright uncovers the hidden costs for consumers.
Consumers often have the following choice: Either buy something directly from a retailer, or buy it indirectly through an intermediary, which partners with the retailer to attract more buyers. Think purchasing a plane ticket straight from the airline versus on Expedia.com, ordering takeout from a restaurant versus on Grubhub.com, or paying cash versus using a credit card.
In many cases, consumers pay the same price for a given product or service, whether buying it directly from its source or through an intermediary. Economists call this “price coherence.” It’s usually borne of contractual restrictions imposed by the intermediaries, who want consumers to focus less on price differences and more on the benefits of value-added services that they provide, such as distribution, one-stop shopping, easy scheduling, payment processing, and other conveniences.