Entry and espionage with noisy signals

Alex Barrachina (), Yair Tauman () and Amparo Urbano

No 113, Discussion Papers in Economic Behaviour from University of Valencia, ERI-CES

Abstract: We analyze industrial espionage in the context of entry deterrence. We consider a monopoly incumbent, who may expand capacity to deter entry, and a potential entrant who owns an inaccurate Intelligence System. The Intelligence System generates a noisy signal on incumbent’s actions and the potential entrant decides whether to enter based on this signal. If the precision of the Intelligence System is commonly known, the incumbent will signal-jam to manipulate the distribution of likely signals and hence the entrant’s decisions. Therefore, the incumbent will benefit from his rival’s espionage. In contrast, the spying firm (the entrant) will typically gain if the espionage accuracy is sufficiently high and privately known by her. In this setting, the market will be more competitive under espionage.

Keywords: Espionage; Entry; Asymmetric information; Signal-Jamming. (search for similar items in EconPapers)
JEL-codes: C72 D82 L10 L12 (search for similar items in EconPapers)
Date: 2013-02
New Economics Papers: this item is included in nep-com and nep-cta
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Citations: View citations in EconPapers (1)

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Journal Article: Entry and espionage with noisy signals (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:dbe:wpaper:0113

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