Price-Matching Guarantees and Entry Deterrence under Incomplete Information

Liping Zhang

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PDF(304 KB)
Front. Econ. China ›› 2012, Vol. 7 ›› Issue (2) : 246-262. DOI: 10.3868/s060-001-012-0011-6
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Price-Matching Guarantees and Entry Deterrence under Incomplete Information

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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.

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matching price guarantee / entry deterrence

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Liping Zhang. Price-Matching Guarantees and Entry Deterrence under Incomplete Information. Front Econ Chin, 2012, 7(2): 246‒262 https://doi.org/10.3868/s060-001-012-0011-6

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2014 Higher Education Press and Brill
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