Financial Contracting, Signal-Jamming, and Entry Deterrence
City University London
Thomas D. Jeitschko
Michigan State University - Department of Economics
Leonard J. Mirman
University of Virginia - Department of Economics
August 27, 2001
We study the relationship between financial contracting and entry deterrence when the potential entrant observes the market price but does not observe the financial contract. This leads to the possibility that the entrant and the lender have different beliefs about the incumbent's costs, due to uncertainty in the demand for the good. We show that as a result, the incumbent produces a different level of output in the first period and the probability of entry increases compared to the case when the entrant observes the financial contract.
Number of Pages in PDF File: 46
Keywords: Experimentation, Strategic Experimentation, Signal Dampening, Signal Jamming, Financial Intermediation, Entry Deterrence
JEL Classification: C73, D8, L1
Date posted: August 29, 2001
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