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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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    References listed on IDEAS

    as
    1. Laffont, Jean-Jacques & Tirole, Jean, 1994. "Access pricing and competition," European Economic Review, Elsevier, vol. 38(9), pages 1673-1710, December.
    2. Banerjee, Aniruddha & Dippon, Christian M., 2009. "Voluntary relationships among mobile network operators and mobile virtual network operators: An economic explanation," Information Economics and Policy, Elsevier, vol. 21(1), pages 72-84, February.
    3. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 33, pages 2145-2220, Elsevier.
    4. Höffler, Felix & Schmidt, Klaus M., 2008. "Two tales on resale," International Journal of Industrial Organization, Elsevier, vol. 26(6), pages 1448-1460, November.
    5. 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.
    6. 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.
    7. 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.
    8. John Vickers, 1995. "Competition and Regulation in Vertically Related Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 1-17.
    9. Lucy White, 2007. "Foreclosure with Incomplete Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 507-535, June.
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    Keywords

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    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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