Dynamic Limit Pricing
The RAND Journal of Economics
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Toxvaerd, F. Dynamic Limit Pricing. The RAND Journal of Economics https://doi.org/10.17863/CAM.6750
I study a multi-period model of limit pricing under one-sided incomplete information. I characterize pooling and separating equilibria and their existence, and determine when these involve limit pricing. For some parameter constellations, the unique equilibrium surviving a D1 type refinement involves immediate separation on monopoly prices. For others, there are limit price equilibria surviving the refinement in which different types may initially pool and then (possibly) separate. Separation involves setting prices such that the inefficient incumbent's profits from mimicking are negative. As the horizon increases or as firms become more patient, limit pricing becomes increasingly difficult to sustain in equilibrium.
dynamic limit pricing, entry deterrence, dynamic signaling, equilibrium selection
This record's DOI: https://doi.org/10.17863/CAM.6750
This record's URL: https://www.repository.cam.ac.uk/handle/1810/261550