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Promoting Lies through Regulation: Deterrence Impacts of Flexible versus Inflexible Policy

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Author Info

  • Ana Espinola-Arredondo
  • Felix Munoz-Garcia
  • Jude Bayham

    ()
    (School of Economic Sciences, Washington State University)

Abstract

This paper investigates the signaling role of tax policy in promoting or hindering the ability of a monopolist to practice entry deterrence. We study contexts in which tax policy is Flexible and inflexible. We show that not only an informative equilibrium can be supported where information is conveyed to the entrant, but also an uninformative equilibrium where information is concealed. In addition, inflexible policies promote information transmission. Therefore, our results identify a potential benefit of inflexible policies, namely, hampering the practice of entry deterrence.

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File URL: http://faculty.ses.wsu.edu/WorkingPapers/AnaEspinola/WP2011-3.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by School of Economic Sciences, Washington State University in its series Working Papers with number 2011-3.

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Length: 34 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:wsu:wpaper:espinola-8

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Related research

Keywords: Entry deterrence; Signaling; Emission fees; Perfect commitment;

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References

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  1. David B. Ridley, 2008. "Herding versus Hotelling: Market Entry with Costly Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(3), pages 607-631, 09.
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Cited by:
  1. Zaikin, Andrey & Espinola-Arredondo, Ana, 2012. "The Carrot or the Stick: Water Allocation Strategies for Uzbekistan," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124680, Agricultural and Applied Economics Association.
  2. Ana Espinola-Arredondo & Felix Munoz-Garcia, 2011. "Environmental Protection Agencies: Measuring the Welfare Benefits from Regulation under Different Information Contexts," Working Papers 2011-11, School of Economic Sciences, Washington State University.

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