1,721,492 research outputs found
Strategic Effects of Investment and Private Information: The Incumbent's Curse
Full text linkWe study a two-period entry model where the incumbent, privately informed about his cost of production, makes a long run investment choice along with a pricing decision. Investment is cost-reducing and its effects are assumed to differ across incumbent's types, as a result investment plays a double role as a commitment variable and, along with price, as a signal. We ask whether and how investment decisions allow the incumbent to limit entry into the market. We find that the incumbent will never undertake strategic investment to deter profitable entry, because when incumbent's costs are private information the signaling role of investment cancels out its value of commitment
Limit Pricing and Strategic Investment
Full text linkWe study an entry model where an incumbent privately informed about costs can make a cost-reducing investment choice, along with a pricing decision, in order to prevent a competing rm from entering the market. We show that if limit pricing per se can not deter pro table entry, the opportunity to undertake a strategic investment does not provide an additional instrument for the achievement of this goal to the incumbent
Private Information and the Commitment Value of Unobservable Investment
Full text linkThe commitment value of unobservable investment with cost-reducing effects is examined in an entry model where the incumbent is privately informed about his costs of production. We show that when the price signals incumbent's costs, unobservable investment can not have any commitment value and the limit price does not limit entry. By contrast, if the price does not reveal costs, which is the more likely outcome, unobservable investment has a magnified value of commitment and a less aggressive limit price deters profitable entry
Optimal Procurement in Multiproduct Monopoly
No full textIn this paper we characterize the optimal procurement policy for a multiproduct monopoly with multidimensional private information about its costs. We show that, unless correlation between costs is positive and large, the optimal procurement contract should regulate jointly the production of the various goods even when these goods are not linked by any technological or demand factor.The economic intuition behind this resultis similar to the rent-extracting argument used to justify the optimal sellingstrategy of a multiproduct monopolist. In both cases a bundlingstrategy allows the principal to reduce the informational rents of `mixed type' agents when they are more likely. The results arealso applied to the case where, for each good, a verifiable quality as well asa quantity index can be contracted upon
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