Oligopoly limit-pricing in the lab
We examine the behavior of senders and receivers in the context of oligopoly limit pricing experiments in which high prices chosen by two privately informed incumbents may signal to a potential entrant that the industry-wide costs are high and that entry is unprofitable. The results provide strong support for the theoretical prediction that the incumbents can credibly deter unprofitable entry without having to distort their prices away from their full information levels. Yet, in a large number of cases, asymmetric information induces incumbents to raise prices when costs are low. The results also show that the entrants' behavior is by and large "bi-polar:" entrants tend to enter when the incumbents' prices are "low" but tend to stay out when the incumbents' prices are "high."
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- : Christian Schultz, .
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93-16, University of Copenhagen. Department of Economics.
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- Guillaume R. Frechette, 2001. "Random-effects ordered probit," Stata Technical Bulletin, StataCorp LP, vol. 10(59).
- Cesar Martinelli & Akihiko Matsui, 2000.
"Policy Reversals and Electoral Competition with Privately Informed Parties,"
0003, Centro de Investigacion Economica, ITAM, revised Jul 2000.
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- Christian Schultz, 1997.
"Limit Pricing when Incumbents have Conflicting Interests,"
CIE Discussion Papers
1997-17, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
- Schultz, Christian, 1999. "Limit pricing when incumbents have conflicting interests," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 801-825, August.
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- Harrington, Joseph E, Jr, 1986. "Limit Pricing When the Potential Entrant Is Uncertain of Its Cost Function [Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis]," Econometrica, Econometric Society, vol. 54(2), pages 429-37, March.
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