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Entry Deterrence with Public Signals: Revisiting the Chain-Store Paradox

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  • Francesc Dilmé

  • Aaron Kolb

Abstract

We revisit the classic chain-store paradox by introducing a novel element: the arrival of exogenous, public signals about the incumbent’s private type over time. As the horizon lengthens, two opposing forces come into play. On one hand, standard reputational incentives grow stronger; on the other, the increasing availability of information makes it more difficult to sustain a reputation. We show that full deterrence can still emerge as the horizon grows arbitrarily long, though not always, and we provide a complete characterization of the conditions under which it arises.

Suggested Citation

  • Francesc Dilmé & Aaron Kolb, 2025. "Entry Deterrence with Public Signals: Revisiting the Chain-Store Paradox," CRC TR 224 Discussion Paper Series crctr224_2025_704, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_704
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp704
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    References listed on IDEAS

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    1. Dilme, Francesc, 2025. "Repeated trade with imperfect information about previous transactions," Theoretical Economics, Econometric Society, vol. 20(1), January.
    2. Mailath, George J. & Samuelson, Larry, 2006. "Repeated Games and Reputations: Long-Run Relationships," OUP Catalogue, Oxford University Press, number 9780195300796.
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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