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Luigi Brighi and Marcello D'Amato
''Limit pricing and strategic investment''
( 2022, Vol. 42 No.4 )
We 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 firm from entering the market. We show that if limit pricing per se can not deter profitable entry, the opportunity to undertake a strategic investment does not provide an additional instrument for the achievement of this goal to the incumbent.
Keywords: Entry deterrence, signalling, strategic investment, limit pricing, pooling equilibrium
JEL: L1 - Market Structure, Firm Strategy, and Market Performance: General
D4 - Market Structure and Pricing: General
Manuscript Received : Jun 14 2022 Manuscript Accepted : Dec 30 2022

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