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Multiple Market Entry, Cost Signalling and Entry Deterrence

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  • Kannan Srinivasan

    (Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

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    Abstract

    A low-cost incumbent may limit price to informatively signal her cost to an uncertain potential entrant, and therefore deter entry. We enrich this model by investigating the strategic pricing behavior of the incumbent when she operates in multiple markets. We demonstrate that the low-cost incumbent's ability to separate from a ghost high-cost type is enhanced when she combines her signalling effort across markets, instead of independent signalling in each market. We show that, in the combined least-cost signalling, the low-cost incumbent limit prices in each market. In an attempt to minimize dissipative but informative signalling costs, the low-cost incumbent may enter unprofitable markets, but exit after credible separation.

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    File URL: http://dx.doi.org/10.1287/mnsc.37.12.1539
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 37 (1991)
    Issue (Month): 12 (December)
    Pages: 1539-1555

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    Handle: RePEc:inm:ormnsc:v:37:y:1991:i:12:p:1539-1555

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    Related research

    Keywords: product line; marketing; multimarket; game theory; asymmetric information models;

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    Cited by:
    1. Andersson, Ola & Carlsson, Hans & Holm, Håkan, 2006. "Endogenous Communication and Tacit Coordination in Market Entry Games - An explorative experimental study," Working Papers 2006:12, Lund University, Department of Economics.
    2. Claussen, Jörg & Kretschmer, Tobias & Spengler, Thomas, 2010. "Market leadership through technology – Backward compatibility in the U.S. Handheld Video Game Industry," Discussion Papers in Business Administration 12716, University of Munich, Munich School of Management.
    3. Claussen, Jörg & Kretschmer, Tobias & Spengler, Thomas, 2010. "Backward Compatibility to Sustain Market Dominance – Evidence from the US Handheld Video Game Industry," Discussion Papers in Business Administration 11499, University of Munich, Munich School of Management.

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