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ANTI-LIMIT PRICING

Authors
Jun, Byoung HeonPark, In-Uck
Issue Date
Dec-2010
Publisher
HITOTSUBASHI UNIV
Keywords
Dynamic signaling; limit pricing; entry deterrence
Citation
HITOTSUBASHI JOURNAL OF ECONOMICS, v.51, no.2, pp.57 - 78
Indexed
SSCI
AHCI
SCOPUS
Journal Title
HITOTSUBASHI JOURNAL OF ECONOMICS
Volume
51
Number
2
Start Page
57
End Page
78
URI
https://scholar.korea.ac.kr/handle/2021.sw.korea/115272
DOI
10.15057/18774
ISSN
0018-280X
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.
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