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Limit Pricing when Incumbents have Conflicting Interests

Author

Listed:
  • Christian Schultz

    (Institute of Economics, University of Copenhagen)

Abstract

This paper considers entry into a market with two incumbents where one prefers and one dislikes entry. Unlike the entrant both incumbents know market demand. One would like to signal high demand, the other low. In separating equilibria incumbents choose full information Nash-equilibrium strategies in each state. Such equilibria only exists if entry is relatively unimportant for an incumbent compared with the cost of deviating to the other state’s Nash-strategy. In growing markets this condition will tend to be violated, and only pooling equilibria may exist. Sensible pooling equilibria have one incumbent distorting price upwards, the other downwards.

Suggested Citation

  • Christian Schultz, 1997. "Limit Pricing when Incumbents have Conflicting Interests," CIE Discussion Papers 1997-17, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    • Handle: RePEc:kud:kuieci:1997-17
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    Cited by:

    1. Bipasa Datta, "undated". "Experimentation, Information sharing and Oligopoly Limit Pricing," Discussion Papers 99/34, Department of Economics, University of York.
    2. Emons, Winand & Fluet, Claude, 2012. "Non-comparative versus comparative advertising of quality," International Journal of Industrial Organization, Elsevier, vol. 30(4), pages 352-360.
    3. Helmut Bester & Juri Demuth, 2015. "Signalling Rivalry and Quality Uncertainty in a Duopoly," Journal of Industry, Competition and Trade, Springer, vol. 15(2), pages 135-154, June.
    4. Ana Espínola-Arredondo & Félix Muñoz-García, 2016. "Profit-enhancing environmental policy: uninformed regulation in an entry-deterrence model," Journal of Regulatory Economics, Springer, vol. 50(2), pages 146-163, October.
    5. Müller, Wieland & Spiegel, Yossi & Yehezkel, Yaron, 2009. "Oligopoly limit-pricing in the lab," Games and Economic Behavior, Elsevier, vol. 66(1), pages 373-393, May.
    6. Cao, Zong-Hong & Zhou, Yong-Wu & Zhao, Ju & Li, Chang-Wen, 2015. "Entry mode selection and its impact on an incumbent supply chain coordination," Journal of Retailing and Consumer Services, Elsevier, vol. 26(C), pages 1-13.
    7. Pegah Bahrani & Alireza Arshadi Khamseh, 2020. "Competitive Environment Between Green and Non-green Products Considering Disruption and Alliance Strategy," Global Journal of Flexible Systems Management, Springer;Global Institute of Flexible Systems Management, vol. 21(2), pages 135-161, June.
    8. Rupayan Pal & Bibhas Saha, 2008. "Union-oligopoly bargaining and entry deterrence: a reassessment of limit pricing," Journal of Economics, Springer, vol. 95(2), pages 121-147, November.
    9. Vida, Péter & Honryo, Takakazu, 2021. "Strategic stability of equilibria in multi-sender signaling games," Games and Economic Behavior, Elsevier, vol. 127(C), pages 102-112.
    10. Xiao, Tiaojun & Qi, Xiangtong, 2010. "Strategic wholesale pricing in a supply chain with a potential entrant," European Journal of Operational Research, Elsevier, vol. 202(2), pages 444-455, April.
    11. Muñoz-Garcia Félix & Espinola-Arredondo Ana, 2015. "The Signaling Role of Subsidies," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(1), pages 157-178, January.
    12. Peter Vida & Takakazu Honryo & Helmuts Azacis, 2022. "Strong Forward Induction in Monotonic Multi-Sender Signaling Games," Thema Working Papers 2022-08, THEMA (Théorie Economique, Modélisation et Applications), CY Cergy-Paris University, ESSEC and CNRS.
    13. Zhou, Yong-Wu & Cao, Zong-Hong & Zhong, Yuanguang, 2015. "Pricing and alliance selection for a dominant retailer with an upstream entry," European Journal of Operational Research, Elsevier, vol. 243(1), pages 211-223.
    14. Winand Emons & Claude Fluet, 2008. "Non-comparative versus Comparative Advertising as a Quality Signal," Diskussionsschriften dp0805, Universitaet Bern, Departement Volkswirtschaft.
    15. Ana Espínola-Arredondo & Félix Muñoz-García, 2015. "Can Poorly Informed Regulators Hinder Competition?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(3), pages 433-461, July.
    16. Hillary Ekisa Nambanga, 2020. "Limit Pricing under Complete Information: A Theoretical Analysis of Mobile network Operators," International Journal of Science and Business, IJSAB International, vol. 4(12), pages 115-122.
    17. Jeong-Yoo Kim, 2003. "Entry Deterrence and Entry Inducement in an Industry with Complementary Products," International Economic Journal, Taylor & Francis Journals, vol. 17(4), pages 107-123.
    18. Minghua Chen & Konstantinos Serfes & Eleftherios Zacharias, 2023. "Prices as signals of product quality in a duopoly," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(1), pages 1-31, March.
    19. Hillary Ekisa Nambanga & Jianpei Li, 2021. "Threat of Entry, Complete Information and Pricing," International Journal of Science and Business, IJSAB International, vol. 5(5), pages 161-182.
    20. Winand Emons & Claude Fluet, 2020. "Adversarial versus Inquisitorial Testimony," Revue économique, Presses de Sciences-Po, vol. 71(3), pages 429-457.
    21. Kiriti Kanjilal & Ana Espinola-Arredondo & Felix Munoz-Garcia, 2024. "Strategic Merger Approvals Under Incomplete Information," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 65(3), pages 759-791, November.

    More about this item

    Keywords

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    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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