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Entry under an information-gathering monopoly

Author

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  • Alex Barrachina

    () (Department of Economics, Universitat Jaume I, Castellón, Spain)

Abstract

The effects of information-gathering activities on a basic entry model with asymmetric information are analyzed. In the basic entry game, an incumbent monopoly faces potential entry by one firm without knowing with certainty whether this potential entrant is weak or strong. If the entrant decides to enter, the monopoly must compete with him and decide whether to accommodate or to fight. To include information-gathering activities, it is considered that the monopoly has access to an Intelligence System (IS) of a certain precision (exogenous and common knowledge) that generates a noisy signal about the entrant's type. When the monopoly believes that the entrant is weak, the probability of market entry increases only for the relatively inaccurate precision of the IS and decreases for relatively accurate precision. If the monopoly is not sure about the entrant’s level of strength or considers him to be strong, the information-gathering activities either have no effect on market entry or decrease the probability of entry. Not only do these results suggest that to inform the entrant credibly about information-gathering activities can be considered as a monopoly’s entry deterrence strategy, but they also provide give an idea about when to allow or not allow monopoly’s information-gathering activities.

Suggested Citation

  • Alex Barrachina, 2016. "Entry under an information-gathering monopoly," Working Papers 2016/09, Economics Department, Universitat Jaume I, Castellón (Spain).
  • Handle: RePEc:jau:wpaper:2016/09
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    File URL: http://www.doctreballeco.uji.es/wpficheros/Barrachina_09_2016.pdf
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    References listed on IDEAS

    as
    1. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    2. Sudipta Sarangi & Pascal Billand & Christophe Bravard & S. Chakrabarti, 2009. "Spying in Multi-market Oligopolies," Departmental Working Papers 2009-11, Department of Economics, Louisiana State University.
    3. Alex Barrachina & Yair Tauman & Amparo Urbano Salvador, 2014. "Entry with Two Correlated Signals," Discussion Papers in Economic Behaviour 0714, University of Valencia, ERI-CES.
    4. Barrachina, Alex & Tauman, Yair & Urbano, Amparo, 2014. "Entry and espionage with noisy signals," Games and Economic Behavior, Elsevier, vol. 83(C), pages 127-146.
    5. S. Ho, 2008. "Extracting the information: espionage with double crossing," Journal of Economics, Springer, vol. 93(1), pages 31-58, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Entry Deterrence; Information-Gathering; Asymmetric Information; Credible Communication;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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