Maria Arbatskaya

"Can low price guarantees deter entry?"
JEL codes: L11, L41, M3
Keywords: low price guarantee, entry deterrence, contestable market

Abstract: This paper examines the strategic use of low price guarantees (LPGs) as an entry deterrent. The entire space of contemporaneous LPG messages is partitioned according to their ability to deter entry and/or increase the incumbent's profits. While most price-matching and price-beating guarantees cannot be used to deter entry into a perfectly contestable market, there do exist special classes of price-beating guarantees that enable the incumbent to prevent entry. Interestingly, both price-matching and price-beating can be a part of the incumbent's strategy in SPE of the game where the firms choose LPGs from fourteen classes defined in the paper.

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