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Threat of Entry, Asymmetric Information and Pricing

50 Pages Posted: 19 Oct 2008 Last revised: 5 Jun 2013

Robert Seamans

New York University (NYU) - Leonard N. Stern School of Business

Date Written: November 22, 2011

Abstract

This paper examines the impact of asymmetric information on incumbent firms’ propensity to engage in limit pricing when faced with threat of entry. I draw from information economics to argue that incumbents will use price to respond ex ante to entry in situations characterized by asymmetric information. I suggest two situations in which asymmetric information can arise: when potential entrants are from outside the primary industry and when incumbent firms are members of R&D consortia. I then study pricing in the US cable TV industry to show that pricing patterns of incumbent cable TV systems are consistent with limit pricing when the relationship between the incumbent and potential entrant is characterized by asymmetric information.

Keywords: entry, information economics, price, incumbent response, cable TV

Suggested Citation

Seamans, Robert, Threat of Entry, Asymmetric Information and Pricing (November 22, 2011). NET Institute Working Paper No. 08-13. Available at SSRN: https://ssrn.com/abstract=1285767 or http://dx.doi.org/10.2139/ssrn.1285767

Robert Seamans (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
New York, NY NY 10012
United States

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