Entry deterrence by cheap talk

Jeong Yoo Kim

doi:10.1111/boer.12309

Entry deterrence by cheap talk

Research output: Contribution to journal › Article › peer-review

Abstract

The conventional wisdom is that an incumbent can deter the rival firm's entry by costly limit pricing but cannot deter entry by a costless signal, so-called cheap talk. In this short paper, we show that an incumbent can deter entry of a potential competitor by cheap talk if there is another potential entrant producing complementary goods. In equilibrium, which is partially revealing, the incumbent can use publicly observable cheap talk that can deter entry of the rival firm with some positive probability.

Original language	English
Pages (from-to)	569-578
Number of pages	10
Journal	Bulletin of Economic Research
Volume	74
Issue number	2
DOIs	https://doi.org/10.1111/boer.12309
Publication status	Published - Apr 2022

Bibliographical note

Publisher Copyright:
© 2021 Board of Trustees of the Bulletin of Economic Research and John Wiley & Sons Ltd.

Keywords

cheap talk
entry deterrence
fully revealing equilibrium
partially revealing equilibrium

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10.1111/boer.12309

Cite this

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Entry deterrence by cheap talk

Abstract

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Keywords

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