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Promoting Lies through Regulation: Deterrence Impacts of Flexible versus Inflexible Policy

Ana Espinola-Arredondo (), Felix Munoz-Garcia () and Jude Bayham

No 2011-3, Working Papers from School of Economic Sciences, Washington State University

Abstract: This paper investigates the signaling role of tax policy in promoting or hindering the ability of a monopolist to practice entry deterrence. We study contexts in which tax policy is Flexible and inflexible. We show that not only an informative equilibrium can be supported where information is conveyed to the entrant, but also an uninformative equilibrium where information is concealed. In addition, inflexible policies promote information transmission. Therefore, our results identify a potential benefit of inflexible policies, namely, hampering the practice of entry deterrence.

Keywords: Entry deterrence; Signaling; Emission fees; Perfect commitment (search for similar items in EconPapers)
JEL-codes: D82 H23 L12 Q5 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2011-04
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