Limit pricing when incumbents have conflicting interest, by Christian
Schultz
This paper considers entry into a market with two incumbents where
one prefers and one dislikes entry. Unlike the entrant both incumbents
know market demand. One would like to signal high demand, the other low.
In separating equilibria incumbents play full information Nash-equilibrium
strategies. Such equilibria only exist if entry is relatively unimportant
for an incumbent compared with the cost of deviating to the Nash-strategy
of the other state. In growing markets this condition will tend to be violated
so that only pooling equilibria may exist.
KEYWORDS: Entry, incomplete information, oligopoly. JEL: D43, D82