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 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 subgame perfect equilibria of the game where the firms choose LPGs from 14 classes defined in the paper.
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