Entry Deterrence and Entry Inducement in an Industry with Complementary Products

Jeong-Yoo Kim

International Economic Journal, 2003, vol. 17, issue 4, 107-123

Abstract: This paper discusses the possibility of signal jamming between multiple informed incumbents with conflicting interests and examines the implication of the possibility in the limit pricing literature. I find fully separating equilibria where the incumbent competing against the entrant does not use limit pricing in an optimal response to “inductive pricing” by another incumbent desiring entry i.e., charging a lower price than the static equilibrium price to induce entry. Thus, contrary to Milgrom and Roborts, the consequences of asymmetric information for welfare are ambiguous even in fully separating equilibria. [L11]

Date: 2003
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DOI: 10.1080/10168730300080029

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