IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

When should a firm expand its business?

Listed author(s):
  • Espínola-Arredondo, Ana
  • Gal-Or, Esther
  • Muñoz-García, Félix

We examine an incumbent's trade-off between the improved efficiency that business expansion facilitates and the signaling role that business expansion plays in conveying information to potential entrants about the state of demand. We demonstrate that both separating and pooling equilibria survive the Intuitive Criterion. Essentially, in contrast to models with asymmetric information about unit cost, incumbents' benefits from investing in a signal are not necessarily monotonic in the state of demand. We investigate how the extent of informativeness of the outcome depends on the enhanced efficiency that the incumbent's expansion facilitates and the priors of the entrant.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0167718711000336
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

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

Volume (Year): 29 (2011)
Issue (Month): 6 ()
Pages: 729-745

as
in new window

Handle: RePEc:eee:indorg:v:29:y:2011:i:6:p:729-745
DOI: 10.1016/j.ijindorg.2011.04.001
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505551

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Mata, Jose & Portugal, Pedro, 1994. "Life Duration of New Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 227-245, September.
  2. 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.
  3. Stahl, Konrad, 1982. "Differentiated Products, Consumer Search, and Locational Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 97-113, September.
  4. Drew Fudenberg & Jean Tirole, 1986. "A "Signal-Jamming" Theory of Predation," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 366-376, Autumn.
  5. Antonio E. Bernardo & Ivo Welch, 2001. "On the Evolution of Overconfidence and Entrepreneurs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(3), pages 301-330, 09.
  6. 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.
  7. David B. Ridley, 2008. "Herding versus Hotelling: Market Entry with Costly Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(3), pages 607-631, 09.
  8. In-Koo Cho & David M. Kreps, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 179-221.
  9. Andrew F. Daughety & Jennifer F. Reinganum, 2002. "Informational Externalities in Settlement Bargaining: Confidentiality and Correlated Culpability," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 587-604, Winter.
  10. Albaek, Svend & Overgaard, Per Baltzer, 1994. "Advertising and pricing to deter or accommodate entry when demand is unknown: Comment," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 83-87, March.
  11. Asher Wolinsky, 1983. "Retail Trade Concentration Due to Consumers' Imperfect Information," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 275-282, Spring.
  12. 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.
  13. 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.
  14. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
  15. Paul H. Jensen & Elizabeth Webster & Hielke Buddelmeyer, 2008. "Innovation, Technological Conditions and New Firm Survival," The Economic Record, The Economic Society of Australia, vol. 84(267), pages 434-448, December.
  16. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 557-566, Winter.
  17. Michael Spence, 1973. "Job Market Signaling," The Quarterly Journal of Economics, Oxford University Press, vol. 87(3), pages 355-374.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:indorg:v:29:y:2011:i:6:p:729-745. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.