EconPapers    
Economics at your fingertips  
 

Private Information and the Commitment Value of Unobservable Investment

Luigi Brighi () and Marcello D'Amato ()

Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi"

Abstract: The commitment value of unobservable investment with cost-reducing effects is examined in an entry model where the incumbent is privately informed about his costs of production. We show that when the price signals incumbent’s costs, unobservable investment can not have any commitment value and the limit price does not limit entry. By contrast, if the price does not reveal costs, which is the more likely outcome, unobservable investment has a magnified value of commitment and a less aggressive limit price deters profitable entry.

Keywords: Commitment; entry deterrence; limit pricing; signaling (search for similar items in EconPapers)
JEL-codes: D24 D82 L12 L41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-gth, nep-mic and nep-reg
Date: 2018-02
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://155.185.68.2/campusone/web_dep/Recentpaper/recent-wp135.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mod:recent:135

Access Statistics for this paper

More papers in Center for Economic Research (RECent) from University of Modena and Reggio E., Dept. of Economics "Marco Biagi" Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-07-22
Handle: RePEc:mod:recent:135