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
- Business, Management and Accounting(all)
- Economics and Econometrics