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Entry deterrence and signaling in markets for search goods

  • de Bijl, Paul W. J.

This paper studies entry in markets for search goods. Signaling through prices is studied when an entrant s quality is (i) private information; and (ii) common information of entrant and incumbent. When consumers visit a store, they observe quality and can switch before purchasing. When switching costs are low, an entrant can signal high quality by setting a sufficiently high price; consumers who find out that quality is low switch to the incumbent. Entry may be facilitated when switching costs are sufficiently low, or when the incumbent knows the entrant s type.

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File URL: http://www.sciencedirect.com/science/article/pii/0167-7187(95)01004-1
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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 16 (1997)
Issue (Month): 1 (November)
Pages: 1-19

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Handle: RePEc:eee:indorg:v:16:y:1997:i:1:p:1-19
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Harold Demsetz, 1981. "Barriers to Entry," UCLA Economics Working Papers 192, UCLA Department of Economics.
  2. Kyle Bagwell & Garey Ramey, 1989. "Oligopoly Limit Pricing," Discussion Papers 829, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
  4. Kyle Bagwell & Michael Riordan, 1988. "High and Declining Prices Signal Product Quality," Discussion Papers 808, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Joseph Farrell, 1985. "Moral Hazard as an Entry Barrier," Working papers 387, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
  7. Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 53(2), pages 236-260, April.
  8. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  9. Paul R. Milgrom & John Roberts, 1985. "Relying on the Information of Interested Parties," Cowles Foundation Discussion Papers 749, Cowles Foundation for Research in Economics, Yale University.
  10. KOHLBERG, Elon & MERTENS, Jean-François, . "On the strategic stability of equilibria," CORE Discussion Papers RP 716, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Steven A Matthews & Doron Fertig, 1990. "Advertising Signals of Product Quality," Discussion Papers 881, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  12. Kyle Bagwell, 1986. "Informational Product Differentiation as a Barrier to Entry," Discussion Papers 711, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Schmalensee, Richard, 1982. "Product Differentiation Advantages of Pioneering Brands," American Economic Review, American Economic Association, vol. 72(3), pages 349-65, June.
  14. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  15. Grossman, Sanford J. & Perry, Motty, 1986. "Perfect sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 39(1), pages 97-119, June.
  16. Bester, Helmut, 1993. "Bargaining versus Price Competition in Markets with Quality Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 278-88, March.
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