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Discriminatory Limit Pricing

  • Sílvia Jorge

    ()

    (Universidade de Aveiro)

  • Cesaltina Pires

    (Universidade de Évora)

We consider a two-period framework where a multimarket incumbent firm faces, in one of the markets, a single potential entrant offering a differentiated product. The incumbent has private information about his production cost and may use both pre-entry prices as predatory signals. We find multiple pure strategy perfect bayesian equilibria. Using equilibrium refine- ments, we show that there is always a unique reasonable perfect bayesian equilibrium. Our results show that in some cases this unique equilibrium entails a downward distortion in both low cost incumbent's pre-entry prices. Moreover, we show that this distortion is identical in both markets and increasing with the discount factor, the degree of product substitutability and the efficiency of the entrant.

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Paper provided by Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro in its series Working Papers de Economia (Economics Working Papers) with number 42.

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Length: 37 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:ave:wpaper:422007
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