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Limit pricing and strategic investment

Author

Listed:
  • Luigi Brighi

    (Università degli studi di Modena e Reggio Emilia)

  • Marcello D'Amato

    (Università degli Studi di Napoli Suor Orsola Benincasa)

Abstract

We study an entry model where an incumbent privately informed about costs can make a cost-reducing investment choice, along with a pricing decision, in order to prevent a competing firm from entering the market. We show that if limit pricing per se can not deter profitable entry, the opportunity to undertake a strategic investment does not provide an additional instrument for the achievement of this goal to the incumbent. We show that if limit pricing per se can not deter profitable entry, the opportunity to undertake a strategic investment does not provide an additional instrument for the achievement of this goal to the incumbent.

Suggested Citation

  • Luigi Brighi & Marcello D'Amato, 2022. "Limit pricing and strategic investment," Economics Bulletin, AccessEcon, vol. 42(4), pages 1946-1954.
    • Handle: RePEc:ebl:ecbull:eb-22-00468
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    File URL: http://www.accessecon.com/Pubs/EB/2022/Volume42/EB-22-V42-I4-P161.pdf
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    More about this item

    Keywords

    Entry deterrence; signalling; strategic investment; limit pricing; pooling equilibrium;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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