Limit pricing and strategic investment

Luigi Brighi () and Marcello D'Amato ()
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Luigi Brighi: Università degli studi di Modena e Reggio Emilia
Marcello D'Amato: Università degli Studi di Napoli Suor Orsola Benincasa

Economics Bulletin, 2022, vol. 42, issue 4, 1946 - 1954

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. 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.

Keywords: Entry deterrence; signalling; strategic investment; limit pricing; pooling equilibrium (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2022-12-30
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