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Entry Invoking

Author

Listed:
  • Jeong-Yoo Kim

    (Kyung Hee University)

  • Sawoong Kang

    (Handong Global University)

Abstract

We consider a vertically integrated incumbent and an entrant who is privately informed of his production cost and is going to enter the downstream industry. We introduce the concept of the entry invoking behavior of a potential entrant. By ��entry invoking behavior,��we mean the entrant��s offer of a higher input price than his first best price under full information to convey the information that his entry benefits the incumbent as well. A high price signals a low cost of the entrant and accordingly a high profit of the integrated firm in a separating equilibrium. In a separating equilibrium, only the efficient (low-type) entrant enters the market, although some efficiency loss in signaling may be incurred. This signaling consideration casts a doubt on the efficiency of the retail-minus access price regulation. We also discuss the possibility of inefficient entry in a pooling equilibrium.

Suggested Citation

  • Jeong-Yoo Kim & Sawoong Kang, 2014. "Entry Invoking," Korean Economic Review, Korean Economic Association, vol. 30, pages 247-271.
  • Handle: RePEc:kea:keappr:ker-20141231-30-2-03
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    File URL: http://keapaper.kea.ne.kr/RePEc/kea/keappr/KER-20141231-30-2-03.pdf
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    References listed on IDEAS

    as
    1. Nicholas Economides & Lawrence J. White, 1995. "Access and Interconnection Pricing: How Efficient is the Efficient Component Pricing Rule?," Working Papers 95-04, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Paula Sarmento, 2003. "Entry Regulation under Asymmetric Information about Demand: A Signalling Model Approach," CEF.UP Working Papers 0304, Universidade do Porto, Faculdade de Economia do Porto.
    3. Vareda, João, 2010. "Access regulation under asymmetric information about the entrant's efficiency," Information Economics and Policy, Elsevier, vol. 22(2), pages 192-199, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Entry Invoking; Foreclosure; Signal; Vertical Integration;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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