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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.

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Bibliographic 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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Keywords: Signaling; Entry; Capacity;

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  1. Riccardo Faini & Jaime Melo & Wendy Takacs, 1995. "A Primer on the MFA Maze," The World Economy, Wiley Blackwell, vol. 18(1), pages 113-135, 01.
  2. Philip L. Paarlberg & John G. Lee, 2001. "U.S. Trade Policy on Lamb Meat: Who Gets Fleeced?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 196-208.
  3. 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.
  4. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
  5. Saloner, Garth, 1985. "Excess capacity as a policing device," Economics Letters, Elsevier, vol. 18(1), pages 83-86.
  6. Allen, B. & Deneckere, R. & Faith, T. & Kovenock, D., 1994. "Capacity Precommitment as a Barrier to Entry: A Bertrand- Engeworth Approach," Papers 9483, Tilburg - Center for Economic Research.
  7. Michele M. Veeman, 1997. "Marketing Boards: The Canadian Experience Revisited," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 45(4), pages 411-420, December.
  8. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
  9. 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.
  10. Cave, J. & Salant, S., 1992. "Cartel Quotas Under Majority Rule," Papers 92-04, Michigan - Center for Research on Economic & Social Theory.
  11. Steve McCorriston, 1996. "Import Quota Licenses and Market Power," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(2), pages 367-372.
  12. repec:fth:geneec:93.07 is not listed on IDEAS
  13. Michele M. Veeman, 1997. "Marketing Boards: The Canadian Experience Revisited," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(5), pages 1554-1562.
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