Limit Pricing through Entry Regulation

Jaehong Kim

No a398, Discussion Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: This paper is about limit pricing under complete information and endogenous market demands. If pre-entry and post-entry market demands are correlated, then limit pricing can be an equilibrium strategy under complete information without government intervention. Furthermore, with government intervention, limiting entry via government dominates self-limiting strategy for the incumbent monopolist. The entry regulation by the benevolent government to prevent excess entry is exploited by the incumbent as a way to protect monopoly position. As a result, the social welfare with entry regulation is lower than under pure market equilibrium. The idea of this paper is general enough to be applied to other dynamic models of sequential entry like a location model of product differentiation.

Keywords: limit pricing; endogenous market demands; excess entry; entry regulation (search for similar items in EconPapers)
JEL-codes: L12 L13 L51 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2000-11
Note: Bibliography: p. 17-18
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hituec:a398

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