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Anti-Limit Pricing

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  • Byoung Heon Jun
  • In-Uck Park

Abstract

Extending Milgrom and Roberts (1982), we analyze an infinite horizon entry model where an incumbent may use its current price to signal its strength, in order to deter entry. In contrast with conventional limit pricing, we show the entry of weaker firms. We also provide necessary and sufficient conditions for this phenomenon to arise in equilibrium, in the benchmark cases that no second entry is profitable.

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Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 172782000000000041.

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Date of creation: 28 Mar 2005
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Handle: RePEc:cla:levrem:172782000000000041

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  1. Overgaard, Per Baltzer, 1994. "Equilibrium effects of potential entry when prices signal quality," European Economic Review, Elsevier, vol. 38(2), pages 367-383, February.
  2. Bagwell, Kyle & Ramey, Garey, 1990. "Advertising and pricing to deter or accommodate entry when demand is unknown," International Journal of Industrial Organization, Elsevier, vol. 8(1), pages 93-113.
  3. Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring.
  4. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
  5. Ashiya, M., 1998. "Weak Entrants are Welcome," ISER Discussion Paper 0468, Institute of Social and Economic Research, Osaka University.
  6. Harrington, Joseph E, Jr, 1986. "Limit Pricing When the Potential Entrant Is Uncertain of Its Cost Function [Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis]," Econometrica, Econometric Society, vol. 54(2), pages 429-37, March.
  7. Matthews, Steven A & Mirman, Leonard J, 1983. "Equilibrium Limit Pricing: The Effects of Private Information and Stochastic Demand," Econometrica, Econometric Society, vol. 51(4), pages 981-96, July.
  8. Kyle Bagwell & Garey Ramey, 1991. "Oligopoly Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 155-172, Summer.
  9. Swinkels, Jeroen M, 1999. "Education Signalling with Preemptive Offers," Review of Economic Studies, Wiley Blackwell, vol. 66(4), pages 949-70, October.
  10. Noldecke,Georg & van Damme,Eric, 1988. "Signalling in a dynamic labor market," Discussion Paper Serie A 148, University of Bonn, Germany.
  11. Kaya, Ay├ža, 2009. "Repeated signaling games," Games and Economic Behavior, Elsevier, vol. 66(2), pages 841-854, July.
  12. B. Douglas Bernheim, 1984. "Strategic Deterrence of Sequential Entry into an Industry," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 1-11, Spring.
  13. Kremer, Ilan & Skrzypacz, Andrzej, 2007. "Dynamic signaling and market breakdown," Journal of Economic Theory, Elsevier, vol. 133(1), pages 58-82, March.
  14. Joseph E. Harrington Jr., 1987. "Oligopolistic Entry Deterrence under Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 211-231, Summer.
  15. Oz Shy, 1996. "Industrial Organization: Theory and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691795, December.
  16. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-39, March.
  17. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  18. Jun, Byoung Heon & Park, In-Uck, 2010. "Anti-Limit Pricing," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 51(2), pages 1-22, December.
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Cited by:
  1. Byoung Heon Jun & In-Uck Park, 2005. "Anti-Limit Pricing," Levine's Bibliography 172782000000000041, UCLA Department of Economics.

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