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Limit-Pricing and Learning-By-Doing: A Dynamic Game with Incomplete Information

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  • Ke Yang

    (Barney School of Business, University of Hartford, U.S.A.)

Abstract

We study a firm's pricing/output strategy under threat of entry in a two-period game with asymmetric information, where the firm can reduce future cost through learning-by-doing. In contrast with previous literature, we show that a firm's incentive to reduce cost through higher production may not align with its incentive to signal its cost type. As a consequence, in equilibrium, the incumbent firm might distort its price upward instead of downward.

Suggested Citation

  • Ke Yang, 2010. "Limit-Pricing and Learning-By-Doing: A Dynamic Game with Incomplete Information," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 9(3), pages 201-212, December.
    • Handle: RePEc:ijb:journl:v:9:y:2010:i:3:p:201-212
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    References listed on IDEAS

    as
    1. Milgrom, Paul & Roberts, John, 1982. "Limit Pricing and Entry under Incomplete Information: An Equilibrium Analysis," Econometrica, Econometric Society, vol. 50(2), pages 443-459, March.
    2. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
    3. Robert H. Smiley & S. Abraham Ravid, 1983. "The Importance of Being First: Learning Price and Strategy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 98(2), pages 353-362.
    4. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, April.
    6. Franco Modigliani, 1958. "New Developments on the Oligopoly Front," Journal of Political Economy, University of Chicago Press, vol. 66(3), pages 215-215.
    7. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Shahryar Gheibi, 2020. "Low-Cost-Driven Leadership: A Theory for Price Dispersion in Competitive Markets," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 19(1), pages 61-76, June.
    2. Cheng-Feng Cheng, 2012. "Evaluate the Effectiveness of Manager Compensation," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 11(1), pages 25-44, June.
    3. Pires Cesaltina Pacheco & Catalão-Lopes Margarida, 2013. "Economies of Scope, Entry Deterrence and Welfare," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 419-452, June.
    4. Ana Espínola-Arredondo & Félix Muñoz-García, 2013. "Uncovering Entry Deterrence in the Presence of Learning-by-Doing," Journal of Industry, Competition and Trade, Springer, vol. 13(3), pages 319-338, September.

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    More about this item

    Keywords

    limit-pricing; learning-by-doing; dynamic game;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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