Oligopoly Limit Pricing
Volume: Volume 22, No. 2
Issue: Summer 1991
Pages: pp. 155-172
Authors: Kyle Bagwell and Garey Ramey
Title: Oligopoly Limit Pricing
Abstract: We expand Milgrom and Roberts' (1982) limit pricing model to allow for multiple incumbents. Each incumbent is informed as to the level of an industry cost parameter and selects a preentry price while a single entrant observes each incumbent's preentry price. We find that incumbents are unable to coordinate deception, which results in a separating equilibrium in which preentry prices are not distorted. Further, introducing the refinement of unprejudiced beliefs, we show that the no-distortion equilibrium is the only refined separating equilibrium. Plausible pooling equilibria fail to exist or involve downward distortions in preentry prices.
JEL Classification
Market Structure, Firm Strategy, and Market Performance:
Oligopoly and Other Incomplete Markets; Monopolistic
Competition; Contestable Markets (L130)
Market Structure and
Pricing: Oligopoly and Other Forms of Market Imperfection (D430)
Market Structure: Industrial Organization and Corporate Strategy
(6110)
Microeconomics Theory of Firm and Industry under
Imperfectly Competitive Market Structures (0226)