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Signaling the Strength of a Market Entrant

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  • Janda, Karel

Abstract

This article belongs to the game theoretic and information economics literature dealing with the problem of signaling in the context of game theoretical models of entry into the industry. As opposed to the majority of literature we consider the situation of asymmetric information where the private information belongs to the entrant. We model the capacity decision of the entrant as a signal of his strength. We show that in the Stackelberg model of market entry for some values of underlying parameters the entrant fully utilizes his capacity while for other parameter values he builds excess capacity. The model may be empirically relevant for industrial organization analysis of the entry of a new supplier to the existing supply chain.

Suggested Citation

  • Janda, Karel, 2009. "Signaling the Strength of a Market Entrant," MPRA Paper 17007, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:17007
    as

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    File URL: https://mpra.ub.uni-muenchen.de/17007/1/MPRA_paper_17007.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Signaling; Entry; Capacity;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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