Anti-limit pricing

Byoung Heon Jun, In Uck Park

Research output: Contribution to journalArticle

1 Citation (Scopus)

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 languageEnglish
Pages (from-to)57-78
Number of pages22
JournalHitotsubashi Journal of Economics
Volume51
Issue number2
Publication statusPublished - 2010 Dec

Keywords

  • Dynamic signaling
  • Entry deterrence
  • Limit pricing

ASJC Scopus subject areas

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

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