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Entry Deterrence and Signaling in Markets for Search Goods

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  • Bijl, P.W.J. de

    (Tilburg University, Center for Economic Research)

Abstract

This paper studies entry in markets for search goods. Signaling through prices is studied when an entrant s quality is (i) private information; and (ii) common information of entrant and incumbent. When consumers visit a store, they observe quality and can switch before purchasing. When switching costs are low, an entrant can signal high quality by setting a sufficiently high price; consumers who find out that quality is low switch to the incumbent. Entry may be facilitated when switching costs are sufficiently low, or when the incumbent knows the entrant s type.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1995-16.

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Date of creation: 1995
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Handle: RePEc:dgr:kubcen:199516

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  1. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-37, September.
  2. Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 53(2), pages 236-260, April.
  3. 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.
  4. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
  5. 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.
  6. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
  7. Steven A Matthews & Doron Fertig, 1990. "Advertising Signals of Product Quality," Discussion Papers 881, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Paul R. Milgrom & John Roberts, 1985. "Relying on the Information of Interested Parties," Cowles Foundation Discussion Papers 749, Cowles Foundation for Research in Economics, Yale University.
  9. Kyle Bagwell, 1986. "Informational Product Differentiation as a Barrier to Entry," Discussion Papers 711, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Bester, Helmut, 1993. "Bargaining versus Price Competition in Markets with Quality Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 278-88, March.
  11. Grossman, Sanford J. & Perry, Motty, 1986. "Perfect sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 39(1), pages 97-119, June.
  12. Joseph Farrell, 1986. "Moral Hazard as an Entry Barrier," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 440-449, Autumn.
  13. Schmalensee, Richard, 1982. "Product Differentiation Advantages of Pioneering Brands," American Economic Review, American Economic Association, vol. 72(3), pages 349-65, June.
  14. Harold Demsetz, 1981. "Barriers to Entry," UCLA Economics Working Papers 192, UCLA Department of Economics.
  15. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
  16. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
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Cited by:
  1. Müller, W. & Spiegel, Y. & Yehezkel, Y., 2009. "Oligopoly limit-pricing in the lab," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125107, Tilburg University.
  2. Hoffmann, Ruben, 2002. "Ownership Structure And Endogenous Quality Choice," 2002 Annual meeting, July 28-31, Long Beach, CA 19869, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  3. Levent Çelik, 2008. "Strategic Informative Advertising in a Horizontally Differentiated Duopoly," CERGE-EI Working Papers wp359, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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