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Multiple Market Entry, Cost Signalling and Entry Deterrence

Author

Listed:
  • Kannan Srinivasan

    (Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213)

Abstract

A low-cost incumbent may limit price to informatively signal her cost to an uncertain potential entrant, and therefore deter entry. We enrich this model by investigating the strategic pricing behavior of the incumbent when she operates in multiple markets. We demonstrate that the low-cost incumbent's ability to separate from a ghost high-cost type is enhanced when she combines her signalling effort across markets, instead of independent signalling in each market. We show that, in the combined least-cost signalling, the low-cost incumbent limit prices in each market. In an attempt to minimize dissipative but informative signalling costs, the low-cost incumbent may enter unprofitable markets, but exit after credible separation.

Suggested Citation

  • Kannan Srinivasan, 1991. "Multiple Market Entry, Cost Signalling and Entry Deterrence," Management Science, INFORMS, vol. 37(12), pages 1539-1555, December.
  • Handle: RePEc:inm:ormnsc:v:37:y:1991:i:12:p:1539-1555
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    File URL: http://dx.doi.org/10.1287/mnsc.37.12.1539
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    Citations

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    Cited by:

    1. Ajay Kalra & Shibo Li, 2008. "Signaling Quality Through Specialization," Marketing Science, INFORMS, vol. 27(2), pages 168-184, 03-04.
    2. Chen, Hui & Jorgensen, Bjorn, 2018. "Market exit through divestment: the effect of accounting bias on competition," LSE Research Online Documents on Economics 64217, London School of Economics and Political Science, LSE Library.
    3. Ajay Kalra & Mengze Shi & Kannan Srinivasan, 2003. "Salesforce Compensation Scheme and Consumer Inferences," Management Science, INFORMS, vol. 49(5), pages 655-672, May.
    4. Preyas S. Desai, 2000. "Multiple Messages to Retain Retailers: Signaling New Product Demand," Marketing Science, INFORMS, vol. 19(4), pages 381-389, August.
    5. Andersson, Ola & Holm, Håkan J., 2010. "Endogenous communication and tacit coordination in market entry games: An explorative experimental study," International Journal of Industrial Organization, Elsevier, vol. 28(5), pages 477-495, September.
    6. Liang Guo & Yue Wu, 2016. "Consumer deliberation and quality signaling," Quantitative Marketing and Economics (QME), Springer, vol. 14(3), pages 233-269, September.
    7. Claussen, Jörg & Kretschmer, Tobias & Spengler, Thomas, 2010. "Backward Compatibility to Sustain Market Dominance – Evidence from the US Handheld Video Game Industry," Discussion Papers in Business Administration 11499, University of Munich, Munich School of Management.
    8. Claussen, Jörg & Kretschmer, Tobias & Spengler, Thomas, 2010. "Market leadership through technology – Backward compatibility in the U.S. Handheld Video Game Industry," Discussion Papers in Business Administration 12716, University of Munich, Munich School of Management.
    9. Ajay Kalra & Surendra Rajiv & Kannan Srinivasan, 1998. "Response to Competitive Entry: A Rationale for Delayed Defensive Reaction," Marketing Science, INFORMS, vol. 17(4), pages 380-405.
    10. Subramanian Balachander, 2001. "Warranty Signalling and Reputation," Management Science, INFORMS, vol. 47(9), pages 1282-1289, September.
    11. Pei-Cheng Liao, 2014. "Input Prices as Signals of Costs to a Downstream Rival and Customer," The Japanese Economic Review, Japanese Economic Association, vol. 65(3), pages 414-430, September.

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