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Entry and espionage with noisy signals

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  • Alex Barrachina

    ()
    (University Carlos III)

  • Yair Tauman

    ()
    (IDC Herzliya and Stony Brook)

  • Amparo Urbano Salvador

    ()
    (ERI-CES)

Abstract

We analyze industrial espionage in the context of entry deterrence. We consider a monopoly incumbent, who may expand capacity to deter entry, and a potential entrant who owns an inaccurate Intelligence System. The Intelligence System generates a noisy signal on incumbent’s actions and the potential entrant decides whether to enter based on this signal. If the precision of the Intelligence System is commonly known, the incumbent will signal-jam to manipulate the distribution of likely signals and hence the entrant’s decisions. Therefore, the incumbent will benefit from his rival’s espionage. In contrast, the spying firm (the entrant) will typically gain if the espionage accuracy is sufficiently high and privately known by her. In this setting, the market will be more competitive under espionage.

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Bibliographic Info

Paper provided by University of Valencia, ERI-CES in its series Discussion Papers in Economic Behaviour with number 0113.

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Date of creation: Feb 2013
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Handle: RePEc:dbe:wpaper:0113

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Keywords: Espionage; Entry; Asymmetric information; Signal-Jamming.;

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