Price-Matching Guarantees and Entry Deterrence under Incomplete Information

Liping Zhang ()
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Liping Zhang: School of Business, Trinity Western University, Langley, BC V2Y 1Y1, Canada

Frontiers of Economics in China-Selected Publications from Chinese Universities, 2012, vol. 7, issue 2, 246-262

Abstract: This paper studies price-matching guarantees in a market where entrant does not have perfect information about incumbent¡¯s cost. The low-cost incumbent can adopt price-matching guarantees as a signal to distinguish itself from the high-cost type and thus effectively deter entry. On the other hand, the high-cost incumbent can successfully fool the potential entrant under certain conditions. Compared with the equilibriums in situations where the option of offering a price guarantee is not available, the use of this instrument either makes it easier for the low-cost incumbent to signal its cost, or expands the range of parameters over which the high-cost incumbent is able to deter entry successfully.

Keywords: matching price guarantee; entry deterrence (search for similar items in EconPapers)
JEL-codes: L10 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fec:journl:v:7:y:2012:i:2:p:246-262

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