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Limit-Pricing and Learning-By-Doing: A Dynamic Game with Incomplete Information

  • Ke Yang

    (Barney School of Business, University of Hartford, U.S.A.)

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We study a firm's pricing/output strategy under threat of entry in a two-period game with asymmetric information, where the firm can reduce future cost through learning-by-doing. In contrast with previous literature, we show that a firm's incentive to reduce cost through higher production may not align with its incentive to signal its cost type. As a consequence, in equilibrium, the incumbent firm might distort its price upward instead of downward.

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Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

Volume (Year): 9 (2010)
Issue (Month): 3 (December)
Pages: 201-212

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Handle: RePEc:ijb:journl:v:9:y:2010:i:3:p:201-212
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  1. Paul Milgrom & John Roberts, 1998. "Limit Pricing and Entry Under Incomplete Information: An Equilibrium Analysis," Levine's Working Paper Archive 245, David K. Levine.
  2. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  3. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
  4. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66, pages 215.
  5. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
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