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Price-Matching Guarantees and Entry Deterrence under Incomplete Information

Author

Listed:
  • Liping Zhang

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

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.

Suggested Citation

  • Liping Zhang, 2012. "Price-Matching Guarantees and Entry Deterrence under Incomplete Information," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 7(2), pages 246-262, June.
    • Handle: RePEc:fec:journl:v:7:y:2012:i:2:p:246-262
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    File URL: http://journal.hep.com.cn/fec/EN/10.3868/s060-001-012-0011-6
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    Cited by:

    1. Dawen Meng & Guoqiang Tian, 2021. "The competitive and welfare effects of long-term contracts with network externalities and bounded rationality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(1), pages 337-375, July.

    More about this item

    Keywords

    matching price guarantee; entry deterrence;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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