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Entry preventing locations under incomplete information

  • Boyer, Marcel
  • Mahenc, Philippe
  • Moreaux, Michel

We show that, under asymmetric information about costs, limit location strategies, that is distortions in pre-entry locations created by the entrant's inference about the incumbent's cost advantage which prevent entry, emerge not only as the result of the incumbent's cost advantage but also as the result of the entrant's beliefs concerning this advantage. The location at the market center may deter entry under incomplete information for a high cost incumbent who would accommodate entry under complete information; moreover, a low cost incumbent deterring entry at that location under complete information may be better off accommodating entry under incomplete information. Nous montrons qu'en présence d'information asymétrique sur les coûts, les stratégies de localisation limite, c'est-à-dire les distorsions dans les localisations permettant à la firme établie d'empêcher l'entrée, résultent non seulement de l'avantage coût de la firme établie mais aussi des croyances de l'entrant concernant cet avantage. La localisation au centre du marché peut dissuader d'entrer, si l'on se trouve en information incomplète et en présence d'une firme établie encourant un coût élevé. Cette même firme accepterait l'entrée en information complète. De plus, une firme établie, encourant un coût faible dissuadant l'entrée à cette localisation en information complète, aurait intérêt à accepter l'entrée si elle se trouvait en information incomplète.

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Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 21 (2003)
Issue (Month): 6 (June)
Pages: 809-829

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Handle: RePEc:eee:indorg:v:21:y:2003:i:6:p:809-829
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

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  1. Boyer, Marcel & Laffont, Jean-Jacques & Mahenc, Philippe & Moreaux, Michel, 1991. "Sequential Location Equilibria under Incomplete Information," IDEI Working Papers 6, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 1994.
  2. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-50, September.
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  7. Richard Schmalensee, 1978. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 305-327, Autumn.
  8. Bagwell, Kyle & Ramey, Garey, 1990. "Advertising and pricing to deter or accommodate entry when demand is unknown," International Journal of Industrial Organization, Elsevier, vol. 8(1), pages 93-113.
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  12. Bester,Helmut, 1988. "Bertrand equilibrium in a differentiated duopoly," Discussion Paper Serie A 209, University of Bonn, Germany.
  13. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
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  17. Cho, In-Koo & Sobel, Joel, 1990. "Strategic stability and uniqueness in signaling games," Journal of Economic Theory, Elsevier, vol. 50(2), pages 381-413, April.
  18. Boyer, Marcel & Laffont, Jean-Jacques & Mahenc, Philippe & Moreaux, Michel, 1994. "Location distortions under incomplete information," Regional Science and Urban Economics, Elsevier, vol. 24(4), pages 409-440, August.
  19. Giacomo Bonanno, 1985. "Product Proliferation and Entry Deterrence Revisited," STICERD - Theoretical Economics Paper Series 114, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
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