IDEAS home Printed from https://ideas.repec.org/a/wsi/serxxx/v59y2014i05ns0217590814500404.html
   My bibliography  Save this article

Entry And Quality Signaling When The Incumbent Is Informed Of The Entrant'S Quality

Author

Listed:
  • FULAN WU

    (China Academy of West Region Development, Zhejiang University, No. 866, Yuhangtang Road, Hangzhou, Zhejiang 310058, China)

Abstract

This paper focuses on competition between an incumbent and an entrant when only the entrant's quality is unknown to consumers. The incumbent knows the entrant's quality. The entrant's quality is assumed to be exogenously determined by nature, or endogenously chosen by the entrant itself. The exogenous model reveals the entrant's high price can signal its high quality, but entry deterrence occurs for the high quality entrant. Interestingly, the incumbent being informed of the entrant's quality generates an additional separating equilibrium in which the incumbent charges a higher price when the entrant's quality is relatively low, and a lower price when the entrant's quality is relatively high. Surprisingly, entry is facilitated. On the contrary to the exogenous model, the endogenous model result shows that entry deterrence still occurs for the high quality entrant with the incumbent being informed of the entrant's quality. However, in both settings, we find that the incumbent could not take advantage of its inside information of the entrant's quality.

Suggested Citation

  • Fulan Wu, 2014. "Entry And Quality Signaling When The Incumbent Is Informed Of The Entrant'S Quality," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 59(05), pages 1-16.
    • Handle: RePEc:wsi:serxxx:v:59:y:2014:i:05:n:s0217590814500404
    DOI: 10.1142/S0217590814500404
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0217590814500404
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0217590814500404?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Helmut Bester & Juri Demuth, 2015. "Signalling Rivalry and Quality Uncertainty in a Duopoly," Journal of Industry, Competition and Trade, Springer, vol. 15(2), pages 135-154, June.
    2. Steven A Matthews & Doron Fertig, 1990. "Advertising Signals of Product Quality," Discussion Papers 881, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vaccari, Federico, 2023. "Competition in costly talk," Journal of Economic Theory, Elsevier, vol. 213(C).
    2. Schultz, Christian, 1999. "Limit pricing when incumbents have conflicting interests," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 801-825, August.
    3. Kyle Bagwell & Garey Ramey, 1994. "Advertising and Coordination," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(1), pages 153-171.
    4. Hillary Ekisa Nambanga, 2020. "Limit Pricing under Complete Information: A Theoretical Analysis of Mobile network Operators," International Journal of Science and Business, IJSAB International, vol. 4(12), pages 115-122.
    5. Hillary Ekisa Nambanga & Jianpei Li, 2021. "Threat of Entry, Complete Information and Pricing," International Journal of Science and Business, IJSAB International, vol. 5(5), pages 161-182.
    6. Mark N. Hertzendorf & Per Baltzer Overgaard, 2001. "Price Competition and Advertising Signals: Signaling by Competing Senders," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(4), pages 621-662, December.
    7. Vaccari, Federico, 2021. "Competition in Signaling," MPRA Paper 106071, University Library of Munich, Germany.
    8. Daughety, Andrew F & Reinganum, Jennifer F, 1995. "Product Safety: Liability, R&D, and Signaling," American Economic Review, American Economic Association, vol. 85(5), pages 1187-1206, December.
    9. Kyle Bagwell & Garey Ramey, 1991. "Oligopoly Limit Pricing," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 155-172, Summer.
    10. de Bijl, Paul W. J., 1997. "Entry deterrence and signaling in markets for search goods," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 1-19, November.
    11. Müller, Wieland & Spiegel, Yossi & Yehezkel, Yaron, 2009. "Oligopoly limit-pricing in the lab," Games and Economic Behavior, Elsevier, vol. 66(1), pages 373-393, May.
    12. Levent Çelik, 2008. "Strategic Informative Advertising in a Horizontally Differentiated Duopoly," CERGE-EI Working Papers wp359, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    13. C. D. Fluet & P. G. Garella, 1995. "Advertising as a Signal of Quality, A New Explanation," Working Papers 231, Dipartimento Scienze Economiche, Universita' di Bologna.
    14. Vida, Péter & Honryo, Takakazu, 2021. "Strategic stability of equilibria in multi-sender signaling games," Games and Economic Behavior, Elsevier, vol. 127(C), pages 102-112.
    15. Minghua Chen & Konstantinos Serfes & Eleftherios Zacharias, 2023. "Prices as signals of product quality in a duopoly," International Journal of Game Theory, Springer;Game Theory Society, vol. 52(1), pages 1-31, March.
    16. Ding, Yucheng, 2014. "Why Branded Firm may Benefit from Counterfeit Competition," MPRA Paper 52933, University Library of Munich, Germany.
    17. Martin Peitz & Paolo G. Garella, 1999. "- Exclusive Dealing Clauses Facilitate Entry," Working Papers. Serie AD 1999-17, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    18. Francesca Barigozzi & Paolo G. Garella & Martin Peitz, 2009. "With a Little Help from My Enemy: Comparative Advertising as a Signal of Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1071-1094, December.
    19. Martin Peitz, 2000. "Exclusionary Practices and Entry Under Asymmetric Information," Econometric Society World Congress 2000 Contributed Papers 1197, Econometric Society.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:serxxx:v:59:y:2014:i:05:n:s0217590814500404. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ser/ser.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.