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Signaling the Strength of a Market Entrant

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Author Info
Janda, Karel

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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.

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File URL: http://mpra.ub.uni-muenchen.de/17007/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17007.

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Date of creation: 29 Aug 2009
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Handle: RePEc:pra:mprapa:17007

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Related research
Keywords: Signaling; Entry; Capacity;

Find related papers by 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
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection

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  1. Allen, B. & Deneckere, R. & Faith, T. & Kovenock, D., 1994. "Capacity Precommitment as a Barrier to Entry: A Bertrand-Edgeworth Approach," Purdue University Economics Working Papers 1062, Purdue University, Department of Economics.
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  2. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-59, March. [Downloadable!] (restricted)
  3. Faini, R. & Melo, J. de & Takacs, W., 1992. "A Primer on the MFA Maze," University of Geneva Economics Working Papers 93.07, University of Geneva, Department of Political Economy.
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  4. Saloner, Garth, 1985. "Excess capacity as a policing device," Economics Letters, Elsevier, vol. 18(1), pages 83-86. [Downloadable!] (restricted)
  5. Krishna, Kala & Tan, Ling Hui, 1999. "Transferable Licenses versus Nontransferable Licenses: What Is the Difference?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 785-800, August.
  6. Kala Krishna & Ling Hui Tan, 1992. "License Price Paths: I. Theory II. Evidence from Hong Kong," NBER Working Papers 4237, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Paarlberg, Philip L & Lee, John G, 2001. " U.S. Trade Policy on Lamb Meat: Who Gets Fleeced?," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 83(1), pages 196-208, February. [Downloadable!] (restricted)
  8. Cave, Jonathan & Salant, Stephen W, 1995. "Cartel Quotas under Majority Rule," American Economic Review, American Economic Association, vol. 85(1), pages 82-102, March. [Downloadable!] (restricted)
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  9. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August. [Downloadable!] (restricted)
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This page was last updated on 2009-11-28.

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