Discriminatory Limit Pricing

Sílvia Jorge and Cesaltina Pires

No 42, Working Papers de Economia (Economics Working Papers) from Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro

Abstract: We consider a two-period framework where a multimarket incumbent firm faces, in one of the markets, a single potential entrant offering a differentiated product. The incumbent has private information about his production cost and may use both pre-entry prices as predatory signals. We find multiple pure strategy perfect bayesian equilibria. Using equilibrium refine- ments, we show that there is always a unique reasonable perfect bayesian equilibrium. Our results show that in some cases this unique equilibrium entails a downward distortion in both low cost incumbent's pre-entry prices. Moreover, we show that this distortion is identical in both markets and increasing with the discount factor, the degree of product substitutability and the efficiency of the entrant.

Keywords: Entry Deterrence; Product Differentiation; Asymmetric Information; Discriminatory Pricing (search for similar items in EconPapers)
JEL-codes: D40 D82 L11 L12 L13 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2007-02
New Economics Papers: this item is included in nep-com, nep-ind and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:ave:wpaper:422007

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