The commitment value of unobservable investment with cost-reducing effects is examined in an entry model where the incumbent is privately informed about his costs of production. We show that when the price signals incumbent’s costs, unobservable investment can not have any commitment value and the limit price does not limit entry. By contrast, if the price does not reveal costs, which is the more likely outcome, unobservable investment has a magnified value of commitment and a less aggressive limit price deters profitable entry.

Brighi, L. e M., D'Amato. "Private Information and the Commitment Value of Unobservable Investment" Working paper, RECENT WORKING PAPER SERIES, Dipartimento di Economia Marco Biagi – Università di Modena e Reggio Emilia, 2018.

Private Information and the Commitment Value of Unobservable Investment

Brighi, L.;D'Amato, M.
2018

Abstract

The commitment value of unobservable investment with cost-reducing effects is examined in an entry model where the incumbent is privately informed about his costs of production. We show that when the price signals incumbent’s costs, unobservable investment can not have any commitment value and the limit price does not limit entry. By contrast, if the price does not reveal costs, which is the more likely outcome, unobservable investment has a magnified value of commitment and a less aggressive limit price deters profitable entry.
2018
Febbraio
Brighi, L.; D'Amato, M.
Brighi, L. e M., D'Amato. "Private Information and the Commitment Value of Unobservable Investment" Working paper, RECENT WORKING PAPER SERIES, Dipartimento di Economia Marco Biagi – Università di Modena e Reggio Emilia, 2018.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/1293548
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