Signaling the Strength of a Market Entrant

Karel Janda

MPRA Paper from University Library of Munich, Germany

Abstract: This article belongs to the game theoretic and information economics literature dealing with the problem of signaling in the context of game theoretical models of entry into the industry. As opposed to the majority of literature we consider the situation of asymmetric information where the private information belongs to the entrant. We model the capacity decision of the entrant as a signal of his strength. We show that in the Stackelberg model of market entry for some values of underlying parameters the entrant fully utilizes his capacity while for other parameter values he builds excess capacity. The model may be empirically relevant for industrial organization analysis of the entry of a new supplier to the existing supply chain.

Keywords: Signaling; Entry; Capacity (search for similar items in EconPapers)
JEL-codes: D43 D82 L13 (search for similar items in EconPapers)
Date: 2009-08-29
New Economics Papers: this item is included in nep-com, nep-cta, nep-ent, nep-ind and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:17007

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