We study an entry model where an incumbent privately informed about costs can make a cost-reducing investment choice, along with a pricing decision, in order to prevent a competing firm from entering the market. We show that if limit pricing per se can not deter profitable entry, the opportunity to undertake a strategic investment does not provide an additional instrument for the achievement of this goal to the incumbent
Limit pricing and strategic investment / Brighi, L.; D'Amato, M.. - In: ECONOMICS BULLETIN. - ISSN 1545-2921. - 42:4(2022), pp. 1946-1954.
Limit pricing and strategic investment
Brighi, L.;D'Amato, M.
2022
Abstract
We study an entry model where an incumbent privately informed about costs can make a cost-reducing investment choice, along with a pricing decision, in order to prevent a competing firm from entering the market. We show that if limit pricing per se can not deter profitable entry, the opportunity to undertake a strategic investment does not provide an additional instrument for the achievement of this goal to the incumbent
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