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Entry Deterrence under Agency Constraints


  • Neelam Jain

    (Department of Economics, Northern Illinois University, U.S.A.)

  • Thomas D. Jeitschko

    (Department of Economics, Michigan State University, U.S.A.)

  • Leonard J. Mirman

    (Department of Economics, University of Virginia, U.S.A.)


We study models of signaling and entry deterrence when the incumbent firm is subject to agency restraints and the principal does not have the relevant information to signal to the potential entrant. The informational implications of the dynamic agency relationship are fully identified. A characterization of optimal contracts is given for both the case of deterministic markets as well as stochastic markets. Moreover, the differences between whether incentive contracts are observable or hidden are presented. We find that one would expect that the study of agency and entry is relevant in many markets, as agency makes entry more lucrative and principals may have reasons to invite entry to alleviate agency costs. We also propose empirically testable hypotheses that are based on the insights of this paper. This study suggests that entry deterrence is more likely to occur in less volatile markets. Also, entry deterrence is found to be more effective when incentives can credibly be made public.

Suggested Citation

  • Neelam Jain & Thomas D. Jeitschko & Leonard J. Mirman, 2003. "Entry Deterrence under Agency Constraints," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 2(3), pages 179-195, December.
  • Handle: RePEc:ijb:journl:v:2:y:2003:i:3:p:179-195

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    References listed on IDEAS

    1. 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.
    2. Neelam Jain & Thomas Jeitschko & Leonard Mirman, 2005. "Entry deterrence under financial intermediation with private information and hidden contracts," Review of Economic Design, Springer;Society for Economic Design, vol. 9(3), pages 203-225, August.
    3. Leonard J. Mirman & Thomas D. Jeitschko & Egas Salgueiro, 2002. "The simple analytics of information and experimentation in dynamic agency," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(3), pages 549-570.
    4. Michael L. Katz, 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 307-328, Autumn.
    5. Caillaud Bernard & Hermalin Benjamin, 1993. "The Use of an Agent in a Signalling Model," Journal of Economic Theory, Elsevier, vol. 60(1), pages 83-113, June.
    6. Leonard J. Mirman & Thomas D. Jeitschko, 2002. "Information and experimentation in short-term contracting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(2), pages 311-331.
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    Cited by:

    1. Jong-Shin Wei & Chwen-Chi Liu, 2003. "Structure, Conduct, and Performance of Principal-Agent Models: An Overview," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 2(3), pages 177-178, December.

    More about this item


    entry deterrence; agency; financial intermediation; licensing; divisionalization;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance


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