IDEAS home Printed from https://ideas.repec.org/a/rje/randje/v17y1986ispringp105-121.html
   My bibliography  Save this article

Sunk Capacity Costs, Long-Run Fixed Costs, and Entry Deterrence under Complete and Incomplete Information

Author

Listed:
  • Larry Arvan

Abstract

This article considers a three-stage, extensive form game where capacity, once installed, is sunk but where fixed costs are not sunk. We show that there may be multiple perfect equilibria of the complete information game. When the entrant is incompletely informed about the incumbent's cost, the entrant may use the incumbent's capacity choice as a signal of the incumbent's cost. We present an example where the incumbent prefers a noninformative capacity signal, since this has the effect of reducing the scale of entry. We present a second example where the entrant is incompletely informed because the incumbent makes a choice over production technologies that is unobservable to the entrant.

Suggested Citation

  • Larry Arvan, 1986. "Sunk Capacity Costs, Long-Run Fixed Costs, and Entry Deterrence under Complete and Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 105-121, Spring.
    • Handle: RePEc:rje:randje:v:17:y:1986:i:spring:p:105-121
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0741-6261%28198621%2917%3A1%3C105%3ASCCLFC%3E2.0.CO%3B2-T&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Felix Munoz-Garcia & Gulnara Zaynutdinova, 2013. "Capacity Constrained Firms and Expansion Subsidies: Should Governments Avoid Generous Subsidies?," Journal of Industry, Competition and Trade, Springer, vol. 13(4), pages 563-597, December.
    2. Wickelgren, Abraham L., 2006. "The effect of exit on entry deterrence strategies," Games and Economic Behavior, Elsevier, vol. 54(1), pages 226-240, January.
    3. Michael Waldman, 1988. "The Simple Case of Entry Deterrence Reconsidered," UCLA Economics Working Papers 517, UCLA Department of Economics.
    4. Felix Munoz-Garcia & Gulnara Zaynutdinova, "undated". "Unobserved Capacity Constraints and Entry Deterrence," Working Papers 2011-5, School of Economic Sciences, Washington State University.
    5. Kyle Bagwell & Garey Ramey, 1996. "Capacity, Entry, and Forward Induction," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 660-680, Winter.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rje:randje:v:17:y:1986:i:spring:p:105-121. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.rje.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.