Anti-limit pricing

Anti-limit pricing

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 duo...

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Veröffentlicht in:Hitotsubashi journal of economics 2010-12, Vol.51 (2), p.1-22
Hauptverfasser: Jun, Byoung Heon, Park, In-uck
Format: Artikel
Sprache:eng
Schlagworte:
Duopoly
Economic theory
Equilibrium
Market entry
Marketing
Oligopoly
Price models
Price theory
Profit
Signalling
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Zusammenfassung: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. [PUBLICATION ABSTRACT]
ISSN:0018-280X