Entry Regulation under Asymmetric Information about Demand: A Signalling Model Approach

Paula Sarmento

CEF.UP Working Papers from Universidade do Porto, Faculdade de Economia do Porto

Abstract: This paper presents a game where the incumbent firm uses the price as a signal about demand size. Without observing the demand, the regulator has to decide if the entry of new firms will be allowed. The game has a pooling Perfect Bayesian Equilibrium in which the incumbent firm chooses the optimal price corresponding to low demand. With this strategy entry is deterred. With linear demand the pooling equilibrium is more likely to occur if the regulator expects a weaker form of competition. Besides, if there are two incumbent firms they have incentive to tacitly cooperate in order to deter entry.

Keywords: asymmetric information; entry regulation; signalling (search for similar items in EconPapers)
JEL-codes: C73 D82 L13 L51 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2003-03
References: Add references at CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:por:cetedp:0304

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