Signaling the Strength of a Market Entrant
AbstractThis 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 17007.
Date of creation: 29 Aug 2009
Date of revision:
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; Mechanism Design
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-05 (All new papers)
- NEP-COM-2009-09-05 (Industrial Competition)
- NEP-CTA-2009-09-05 (Contract Theory & Applications)
- NEP-ENT-2009-09-05 (Entrepreneurship)
- NEP-IND-2009-09-05 (Industrial Organization)
- NEP-MIC-2009-09-05 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August.
- Allen, B. & Deneckere, R. & Faith, T. & Kovenock, D., 1994.
"Capacity Precommitment as a Barrier to Entry: A Bertrand- Engeworth Approach,"
9483, Tilburg - Center for Economic Research.
- Dan Kovenock & Raymond Deneckere & Tom Faith & Beth Allen, 2000. "Capacity precommitment as a barrier to entry: A Bertrand-Edgeworth approach," Economic Theory, Springer, vol. 15(3), pages 501-530.
- 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.
- Beth Allen & Raymond Deneckere & Tom Faith & Dan Kovenock, 1994. "Capacity Precommitment as a Barrier to Entry:A Bertrand-Edgeworth Approach," Industrial Organization 9411002, EconWPA, revised 14 Nov 1994.
- Beth Allen & Raymond Deneckere & Tom Faith & Dan Kovenock, 1995. "Capacity precommitment as a barrier to entry: a Bertrand-Edgeworth approach," Staff Report 187, Federal Reserve Bank of Minneapolis.
- 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.
- Faini, R. & Melo, J. de & Takacs, W., 1992. "A Primer on the MFA Maze," Research Papers by the Department of Economics, University of Geneva 92.15, Département des Sciences Économiques, Université de Genève.
- de Melo, Jaime & Faini, Riccardo, 1992. "A Primer on the MFA Maze," CEPR Discussion Papers 716, C.E.P.R. Discussion Papers.
- Faini, Riccardo & de Melo, Jaime & Takacs, Wendy, 1993. "A primer on the MFA maze," Policy Research Working Paper Series 1088, The World Bank.
- repec:fth:geneec:93.07 is not listed on IDEAS
- Paul Milgrom & John Roberts, 1998.
"Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis,"
Levine's Working Paper Archive
245, David K. Levine.
- 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.
- Saloner, Garth, 1985. "Excess capacity as a policing device," Economics Letters, Elsevier, vol. 18(1), pages 83-86.
- Cave, J. & Salant, S., 1992.
"Cartel Quotas Under Majority Rule,"
92-04, Michigan - Center for Research on Economic & Social Theory.
- 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.
- 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.
- 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.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.