Limit Pricing when Incumbents have Conflicting Interests
AbstractThis paper considers entry into a market with two incumbents where one prefers and one dislikes entry. Unlike the entrant both incumbents know market demand. One would like to signal high demand, the other low. In separating equilibria incumbents choose full information Nash-equilibrium strategies in each state. Such equilibria only exists if entry is relatively unimportant for an incumbent compared with the cost of deviating to the other state’s Nash-strategy. In growing markets this condition will tend to be violated, and only pooling equilibria may exist. Sensible pooling equilibria have one incumbent distorting price upwards, the other downwards.
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Bibliographic InfoPaper provided by University of Copenhagen. Department of Economics. Centre for Industrial Economics in its series CIE Discussion Papers with number 1997-17.
Length: 34 pages
Date of creation: Jun 1997
Date of revision:
Publication status: Published in: International Journal of Industrial Organization, 17(6), 801-825, 1999
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More information through EDIRC
entry; incomplete information; oligopoly;
Other versions of this item:
- Schultz, Christian, 1999. "Limit pricing when incumbents have conflicting interests," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 801-825, August.
- D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
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