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Financially Constrained Entry in a Game with Incomplete Information

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  • Jean-Pierre Benoit
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    Abstract

    In an earlier paper we presented an entry game with a monopolist and a potential entrant facing financial constraints in which the unique perfect equilibrium involved no entry. Here we consider a one-sided, incomplete information variant of the game in which the monopolist allows for the possibility that the entrant is committed to endure a price war to the limit of his capability. We find a unique sequentially perfect equilibrium in which entry sometimes occurs. When it does, predatory price wars may result, with the incumbent sometimes driving out the entrant but other times eventually abandoning the fight.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 15 (1984)
    Issue (Month): 4 (Winter)
    Pages: 490-499

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    Handle: RePEc:rje:randje:v:15:y:1984:i:winter:p:490-499

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    Cited by:
    1. Xavier Boutin & Giacinta Cestone & Chiara Fumagalli & Giovanni Pica & Nicolas Serrano-Velarde, 2009. "The Deep-Pocket Effect of Internal Capital Markets," CSEF Working Papers 217, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 30 Jun 2012.
    2. Roman Inderst, 2004. "Conglomerate Entrenchment under Optimal Financial Contracting," FMG Discussion Papers dp521, Financial Markets Group.
    3. Phillips, Gordon M., 1995. "Increased debt and industry product markets An empirical analysis," Journal of Financial Economics, Elsevier, vol. 37(2), pages 189-238, February.
    4. Valta, Philip, 2012. "Competition and the cost of debt," Journal of Financial Economics, Elsevier, vol. 105(3), pages 661-682.
    5. Chan, Kwok Ho & Lu, Zhou & Fung, Ka Wai Terence, 2013. "Predation Due to Bargaining Power Difference in Financial Contracting," MPRA Paper 52873, University Library of Munich, Germany.
    6. Fabien Bertho, 2012. "The Impact of Liner Shipping Trade and Competition Regulations on The Market Structure, Maritime Transport Costs and Seaborne Trade Flows: Regulations on The Market Structure, Maritime Transport Costs," Sciences Po publications info:hdl:2441/7o52iohb7k6, Sciences Po.
    7. repec:spo:wpecon:info:hdl:2441/7o52iohb7k6srk09mit038srm is not listed on IDEAS

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