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The B.E. Journal of Theoretical Economics

Editor-in-Chief: Schipper, Burkhard

Ed. by Fong, Yuk-fai / Peeters, Ronald / Puzzello , Daniela / Rivas, Javier / Wenzelburger, Jan

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Upward and Downward Limit Pricing: The Role of Post-Entry Competition

Luis M Granero1

1University of Valencia,

Citation Information: Topics in Theoretical Economics. Volume 5, Issue 1, ISSN (Online) 1534-598X, DOI: 10.2202/1534-598X.1146, February 2005

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Under asymmetric information, entry-deterring strategies by an incumbent monopolist can consist of deviations from its static monopoly price through downward deviations termed downward limit pricing, or upward deviations termed upward limit pricing. Our analysis shows that the mode of post-entry competition influences the range of situations in which an incumbent adopts a strategy of downward limit pricing instead of an upward one: this range is greater under price than under output competition; it is decreasing in the degree of product differentiation; and with homogeneous product only downward limit pricing emerges under price competition, while upward limit pricing can still take place with output competition.

Keywords: Entry; Limit price; Signalling; Post-entry competition

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