Anti-limit pricing

Byoung Heon Jun; In Uck Park

Anti-limit pricing

Byoung Heon Jun, In Uck Park

Research output: Contribution to journal › Article › peer-review

Abstract

Extending Milgrom and Roberts (1982), we analyze an infinite horizon entry model where an incumbent may use its current price to signal its strength, in order to deter entry. In contrast with conventional limit pricing, we show that due to the importance of entrants' types on the post-entry duopoly/oligopoly profits, the incumbent may want to signal its weakness to invite the entry of weaker firms. We also provide necessary and sufficient conditions for this phenomenon to arise in equilibrium, in the benchmark cases that no second entry is profitable.

Original language	English
Pages (from-to)	57-78
Number of pages	22
Journal	Hitotsubashi Journal of Economics
Volume	51
Issue number	2
Publication status	Published - 2010 Dec

Keywords

Dynamic signaling
Entry deterrence
Limit pricing

ASJC Scopus subject areas

General Business,Management and Accounting
Economics and Econometrics

Cite this

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title = "Anti-limit pricing",

abstract = "Extending Milgrom and Roberts (1982), we analyze an infinite horizon entry model where an incumbent may use its current price to signal its strength, in order to deter entry. In contrast with conventional limit pricing, we show that due to the importance of entrants' types on the post-entry duopoly/oligopoly profits, the incumbent may want to signal its weakness to invite the entry of weaker firms. We also provide necessary and sufficient conditions for this phenomenon to arise in equilibrium, in the benchmark cases that no second entry is profitable.",

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AB - Extending Milgrom and Roberts (1982), we analyze an infinite horizon entry model where an incumbent may use its current price to signal its strength, in order to deter entry. In contrast with conventional limit pricing, we show that due to the importance of entrants' types on the post-entry duopoly/oligopoly profits, the incumbent may want to signal its weakness to invite the entry of weaker firms. We also provide necessary and sufficient conditions for this phenomenon to arise in equilibrium, in the benchmark cases that no second entry is profitable.

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KW - Entry deterrence

KW - Limit pricing

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Anti-limit pricing

Abstract

Keywords

ASJC Scopus subject areas

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