Oligopoly Limit Pricing
AbstractWe expand Milgrom and Roberts' (1982) limit pricing model to allow for multiple incumbents. Each incumbent is informed as to the level of an industry cost parameter and selects a preentry price while a single entrant observes each incumbent's preentry price. We find that incumbents are unable to coordinate deception, which results in a separating equilibrium in which preentry prices are not distorted. Further, introducing the refinement of unprejudiced beliefs, we show that the no-distortion equilibrium is the only refined separating equilibrium. Plausible pooling equilibria fail to exist or involve downward distortions in preentry prices.
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 829.
Date of creation: Apr 1989
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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
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