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Promoting Lies through Regulation: Deterrence Impacts of Flexible versus Inflexible Policy

Author

Listed:
  • Ana Espinola-Arredondo
  • Felix Munoz-Garcia
  • Jude Bayham

    () (School of Economic Sciences, Washington State University)

Abstract

This paper investigates the signaling role of tax policy in promoting or hindering the ability of a monopolist to practice entry deterrence. We study contexts in which tax policy is Flexible and inflexible. We show that not only an informative equilibrium can be supported where information is conveyed to the entrant, but also an uninformative equilibrium where information is concealed. In addition, inflexible policies promote information transmission. Therefore, our results identify a potential benefit of inflexible policies, namely, hampering the practice of entry deterrence.

Suggested Citation

  • Ana Espinola-Arredondo & Felix Munoz-Garcia & Jude Bayham, 2011. "Promoting Lies through Regulation: Deterrence Impacts of Flexible versus Inflexible Policy," Working Papers 2011-3, School of Economic Sciences, Washington State University.
  • Handle: RePEc:wsu:wpaper:espinola-8
    as

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    File URL: http://faculty.ses.wsu.edu/WorkingPapers/AnaEspinola/WP2011-3.pdf
    File Function: First version, 2011
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    References listed on IDEAS

    as
    1. David B. Ridley, 2008. "Herding versus Hotelling: Market Entry with Costly Information," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(3), pages 607-631, September.
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    Cited by:

    1. Ana Espinola-Arredondo & Felix Munoz-Garcia, 2011. "Environmental Protection Agencies: Measuring the Welfare Benefits from Regulation under Different Information Contexts," Working Papers 2011-11, School of Economic Sciences, Washington State University.
    2. Zaikin, Andrey & Espinola-Arredondo, Ana, 2012. "The Carrot or the Stick: Water Allocation Strategies for Uzbekistan," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124680, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    Entry deterrence; Signaling; Emission fees; Perfect commitment;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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