We study a standard entry game where the incumbent makes a long runinvestment choice and a pricing decision facing the threat of entry. Whenthe investment decision is not observed by the potential entrant and theincumbent has private information on costs we show that an aggressivepricing strategy restores the commitment value of investment in a separatingequilibrium and affects the probability of entry.
Brighi, Luigi, D'Amato, M. e Piccolo, S.. "Entry deterrence with unobservable investment. Revisiting LimitPricing" Working paper, MATERIALI DI DISCUSSIONE, Dipartimento di Economia Politica - Università di Modena e Reggio Emilia, 2005. https://doi.org/10.25431/11380_634620
Entry deterrence with unobservable investment. Revisiting LimitPricing
BRIGHI, Luigi;
2005
Abstract
We study a standard entry game where the incumbent makes a long runinvestment choice and a pricing decision facing the threat of entry. Whenthe investment decision is not observed by the potential entrant and theincumbent has private information on costs we show that an aggressivepricing strategy restores the commitment value of investment in a separatingequilibrium and affects the probability of entry.
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