We consider a two-period framework where a multimarket incumbent firm faces, in one of the markets, a single potential entrant offering a differentiated product. The incumbent has private information about his production cost and may use both pre-entry prices as predatory signals. We find multiple pure strategy perfect bayesian equilibria. Using equilibrium refine- ments, we show that there is always a unique reasonable perfect bayesian equilibrium. Our results show that in some cases this unique equilibrium entails a downward distortion in both low cost incumbent's pre-entry prices. Moreover, we show that this distortion is identical in both markets and increasing with the discount factor, the degree of product substitutability and the efficiency of the entrant.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.