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Oligopolistic Entry Deterrence under Incomplete Information

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Author Info
Joseph E. Harrington Jr.

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Abstract

Recent work has investigated the effects of asymmetric information between an incumbent firm and a potential entrant. This study extends the analysis to allow the initial market structure to be a noncooperative oligopoly. We show that there is a Bayesian Nash equilibrium in which the incumbent firms, although unable to collude, strategically deter entry that would have occurred under complete information. In contrast to the past limit-pricing literature, it is a high price that deters entry as it signals to the potential entrant that this is a high-cost industry. Extending the model to allow for multiple potential entrants, we find that increasing the degree of potential competition raises the preentry price and reduces the likelihood of entry.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28198722%2918%3A2%3C211%3AOEDUII%3E2.0.CO%3B2-7&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 18 (1987)
Issue (Month): 2 (Summer)
Pages: 211-231
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Handle: RePEc:rje:randje:v:18:y:1987:i:summer:p:211-231

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  1. Kyle Bagwell, 2006. "Signaling and entry deterrence: A multi-dimensional analysis," Discussion Papers 0506-16, Columbia University, Department of Economics. [Downloadable!]
  2. Thierry Foucault & Sophie Moinas & Erik Theissen, 2004. "Does Anonymity Matter in Electronic Limit Order Markets?," Discussion Papers 3, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  3. Michael Waldman, 1987. "Underinvestment in Entry Deterrence: When and Why," UCLA Economics Working Papers 456, UCLA Department of Economics. [Downloadable!]
  4. Michael Waldman, 1988. "The Simple Case of Entry Deterrence Reconsidered," UCLA Economics Working Papers 517, UCLA Department of Economics. [Downloadable!]
  5. Ilan Guttman & Ohad Kadan & Eugene Kandel, 2003. "Adding the Noise: A Theory of Compensation-Driven Earnings Management," Discussion Paper Series dp355, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
  6. Byoung Heon Jun & In-Uck Park, 2005. "Anti-Limit Pricing," Levine's Bibliography 172782000000000041, UCLA Department of Economics. [Downloadable!]
    Other versions:
  7. Kyle Bagwell, 1991. "Competitive Limit Pricing Under Imperfect Information," Discussion Papers 954, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
    Other versions:
  8. Anthony Creane & Kaz Miyagiwa, 2007. "The Profitable Suppression of Inventions: Technology Choice and Entry Deterrence," ISER Discussion Paper 0702, Institute of Social and Economic Research, Osaka University. [Downloadable!]
  9. Andrew F. Daughety & Jennifer F. Reinganum, 2006. "Hidden Talents: Partnerships with Pareto-Improving Private Information," Working Papers 0613, Department of Economics, Vanderbilt University. [Downloadable!]
  10. Andrew F. Daughety & Jennifer F. Reinganum, 2005. "Imperfect Competition and Quality Signaling," Working Papers 0520, Department of Economics, Vanderbilt University. [Downloadable!]
    Other versions:
  11. Marcel Boyer & Philippe Mahenc & Michel Moreaux, 2002. "Entry Preventing Locations Under Incomplete Information," CIRANO Working Papers 2002s-15, CIRANO. [Downloadable!]
    Other versions:
  12. Jeong-Yoo Kim, 2003. "Entry Deterrence And Entry Inducement In An Industry With Complementary Products," International Economic Journal, Korean International Economic Association, vol. 17(4), pages 107-123, December. [Downloadable!] (restricted)
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