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Rational Signals of Weakness in a Market Entry Game

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  • Jurjen J. A. Kamphorst
  • Ewa Mendys-Kamphorst
  • Bastian Westbrock

Abstract

It is well established that incumbent firms may try to deter market entry by pretending to be stronger than they really are. In this article, we show that in some cases an incumbent may prefer the opposite, namely to encourage entry by signaling weakness. If the incumbent cannot deter entry of a potential strong entrant by itself, it may elicit entry of a weaker firm that would not enter if it were informed about the incumbent´s true strength. The presence of the additional firm can prevent further entry. Consequently, the incumbent faces a weaker competitor in the long run.

Suggested Citation

  • Jurjen J. A. Kamphorst & Ewa Mendys-Kamphorst & Bastian Westbrock, 2013. "Rational Signals of Weakness in a Market Entry Game," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(3), pages 519-530, September.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201309)169:3_519:rsowia_2.0.tx_2-w
    DOI: 10.1628/093245613X669439
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    References listed on IDEAS

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    1. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-941, December.
    2. Creane, Anthony & Konishi, Hideo, 2009. "The unilateral incentives for technology transfers: Predation (and deterrence) by proxy," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 379-389, May.
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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