Information Manipulation and Entry Deterrence
In this paper we study the production decisions of a firm facing uncertain demand and the threat of entry from a rival. The incumbent, who has the ability to generate information about demand by appropriately choosing quantity, can use information to make better informed choices and to manipulate the decisions of the rival firm. We find that, although the monopolist may increase or even decrease quantity to discourage entry, it always manipulates information in a way that lowers the ex ante probability of entry.
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