IDEAS home Printed from https://ideas.repec.org/a/bla/buecrs/v74y2022i2p569-578.html
   My bibliography  Save this article

Entry deterrence by cheap talk

Author

Listed:
  • Jeong‐Yoo Kim

Abstract

The conventional wisdom is that an incumbent can deter the rival firm's entry by costly limit pricing but cannot deter entry by a costless signal, so‐called cheap talk. In this short paper, we show that an incumbent can deter entry of a potential competitor by cheap talk if there is another potential entrant producing complementary goods. In equilibrium, which is partially revealing, the incumbent can use publicly observable cheap talk that can deter entry of the rival firm with some positive probability.

Suggested Citation

  • Jeong‐Yoo Kim, 2022. "Entry deterrence by cheap talk," Bulletin of Economic Research, Wiley Blackwell, vol. 74(2), pages 569-578, April.
    • Handle: RePEc:bla:buecrs:v:74:y:2022:i:2:p:569-578
    DOI: 10.1111/boer.12309
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/boer.12309
    Download Restriction: no
    File URL: https://libkey.io/10.1111/boer.12309?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Farrell, Joseph & Gibbons, Robert, 1989. "Cheap talk can matter in bargaining," Journal of Economic Theory, Elsevier, vol. 48(1), pages 221-237, June.
    2. Gibbons, Robert, 1988. "Learning in Equilibrium Models of Arbitration," American Economic Review, American Economic Association, vol. 78(5), pages 896-912, December.
    3. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    4. Matthews, Steven A & Mirman, Leonard J, 1983. "Equilibrium Limit Pricing: The Effects of Private Information and Stochastic Demand," Econometrica, Econometric Society, vol. 51(4), pages 981-996, July.
    5. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    6. Farrell, Joseph & Gibbons, Robert, 1989. "Cheap Talk with Two Audiences," American Economic Review, American Economic Association, vol. 79(5), pages 1214-1223, December.
    7. Krishna, Vijay, 2001. "Asymmetric Information and Legislative Rules: Some Amendments," American Political Science Review, Cambridge University Press, vol. 95(2), pages 435-452, June.
    8. repec:hoo:wpaper:e-89-7 is not listed on IDEAS
    9. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
    10. Jeong-Yoo Kim, 2003. "Entry Deterrence and Entry Inducement in an Industry with Complementary Products," International Economic Journal, Taylor & Francis Journals, vol. 17(4), pages 107-123.
    11. Steven A. Matthews, 1989. "Veto Threats: Rhetoric in a Bargaining Game," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(2), pages 347-369.
    12. Joseph Farrell, 1987. "Cheap Talk, Coordination, and Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 34-39, Spring.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Austen-Smith, David & Banks, Jeffrey S., 2000. "Cheap Talk and Burned Money," Journal of Economic Theory, Elsevier, vol. 91(1), pages 1-16, March.
    2. Ying Chen & Hülya Eraslan, 2013. "Informational loss in bundled bargaining," Journal of Theoretical Politics, , vol. 25(3), pages 338-362, July.
    3. Kristopher W. Ramsay, 2004. "Politics at the Water’s Edge," Journal of Conflict Resolution, Peace Science Society (International), vol. 48(4), pages 459-486, August.
    4. Sandeep Baliga & Tomas Sjostrom, 2012. "The Strategy of Manipulating Conflict," American Economic Review, American Economic Association, vol. 102(6), pages 2897-2922, October.
    5. Peter Bils & William Spaniel, 2017. "Policy bargaining and militarized conflict," Journal of Theoretical Politics, , vol. 29(4), pages 647-678, October.
    6. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
    7. Olivier Gossner & Nicolas Melissas, 2006. "Informational Cascades Elicit Private Information ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 297-325, February.
    8. , & ,, 2014. "Rhetoric in legislative bargaining with asymmetric information," Theoretical Economics, Econometric Society, vol. 9(2), May.
    9. Lim, Wooyoung, 2014. "Communication in bargaining over decision rights," Games and Economic Behavior, Elsevier, vol. 85(C), pages 159-179.
    10. Sobel, Joel, 2013. "Ten possible experiments on communication and deception," University of California at San Diego, Economics Working Paper Series qt53w1f0w4, Department of Economics, UC San Diego.
    11. de Groot Ruiz, Adrian & Offerman, Theo & Onderstal, Sander, 2015. "Equilibrium selection in experimental cheap talk games," Games and Economic Behavior, Elsevier, vol. 91(C), pages 14-25.
    12. Luis Alejandro Palacio García & Alexandra Cortés Aguilar & Manuel Muñoz-Herrera, 2015. "The bargaining power of commitment: An experiment of the effects of threats in the sequential hawk–dove game," Rationality and Society, , vol. 27(3), pages 283-308, August.
    13. Takashi Shimizu, 2017. "Cheap talk with an exit option: a model of exit and voice," International Journal of Game Theory, Springer;Game Theory Society, vol. 46(4), pages 1071-1088, November.
    14. Ana Espinola-Arredondo & Esther Gal-Or & Felix Munoz-Garcia, 2009. "When Should a Firm Expand Its Business? The Signaling Implications of Business Expansion," Working Papers 2008-16, School of Economic Sciences, Washington State University.
    15. Hongbin Cai, 2009. "Costly participation and heterogeneous preferences in informational committees," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 173-189, March.
    16. Battaglini, Marco & Makarov, Uliana, 2014. "Cheap talk with multiple audiences: An experimental analysis," Games and Economic Behavior, Elsevier, vol. 83(C), pages 147-164.
    17. Julian Jamison, 2012. "Valuable cheap talk and equilibrium selection," Working Papers 12-3, Federal Reserve Bank of Boston.
    18. Li, Ming & Madarász, Kristóf, 2008. "When mandatory disclosure hurts: Expert advice and conflicting interests," Journal of Economic Theory, Elsevier, vol. 139(1), pages 47-74, March.
    19. Adrian Groot Ruiz & Theo Offerman & Sander Onderstal, 2014. "For those about to talk we salute you: an experimental study of credible deviations and ACDC," Experimental Economics, Springer;Economic Science Association, vol. 17(2), pages 173-199, June.
    20. Matthews, Steven A. & Postlewaite, Andrew, 1989. "Pre-play communication in two-person sealed-bid double auctions," Journal of Economic Theory, Elsevier, vol. 48(1), pages 238-263, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:buecrs:v:74:y:2022:i:2:p:569-578. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0307-3378 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.