Entry under an Information‐Gathering Monopoly

Abstract

The effects of information-gathering activities on an entry model with asymmetric information are analysed. The baseline game is a classical entry game where an incumbent monopoly faces potential entry by a firm without knowing for certain whether this potential entrant is weak or strong. If the entrant decides to enter, the incumbent must compete with him and decide whether to accommodate or to fight. The paper extends this entry game and considers that the monopoly credibly informs the entrant that she is able to gather information about his type if he finally enters the market, thereby helping her to better decide whether to accommodate or fight. Since knowing this might reduce the entrant's willingness to compete with her, we focus the analysis on the effectiveness of this monopoly's communicative action as an entry deterrence strategy. The results suggest that such an action is effective regardless of the precision of the Intelligence System (IS) only for a relatively low payoff gained by the entrant from competing with the incumbent. For higher payoffs for the entrant, the effectiveness of this action requires a considerably accurate IS.

Market must be defended: The role of counter-espionage policy in protecting domestic market welfare

“…In this sense, this intelligence and security service has defined a broad program to counter economic espionage. 4 The present paper advances the theoretical analysis of the interaction between economic espionage and counter-espionage based on ruining measures.…”

“…This strand of research found market circumstances under which the latter is smaller than the former and, therefore, regulation of entry might be desirable. Two prominent early contributions along these lines are Mankiw and Whinston (1986) and Suzumura and Kiyono (1987) Barrachina (2019). They focused on a context, not necessarily characterized by international free trade, in which an incumbent wishes to deter a potential entrant from entering the market.…”

More market awareness, more profit? Competitive environments, business expansions, and two‐sided markets

“…Wang, Gurnani, and Erkoc ((2016)) analyzed the role of pricing and branding in an incumbent firm's decision when facing competition from an entrant firm with limited capacity, finding that in some cases, the incumbent may even increase its price and successfully deter entry by investing in the consumers' reference for its product. Other scholars have made contributions to the knowledge about the competition of the incumbent and the potential entrant (Guo & Ma, 2018; Barrachina, 2019; Huberts et al 2019). However, few of them have studied the competition of the incumbent and the potential entrant while taking business expansion in two‐sided markets into consideration.…”

“…The above examples motivate us to study the competition between potential entrant platforms and incumbent platforms in the case of business expansion 5 . In recent years, interest in the competition of incumbents and potential entrants has increased sharply (Bakos & Brynjolfsson, 2000,Barrachina, 2019, Huberts, Dawid, Huisman, and Kort ; 2019,2017). More specifically, Bakos and Brynjolfsson (2000) studied different types of competition, including upstream and downstream competition.…”

“…Pal and Ramani (2017) found that entry deterrence is not always an optimal strategy for the incumbent and whether to accommodate or deter the entrant depends on the fixed cost of entry. Barrachina (2019) constructed an entry model and studied the entry game considering information‐gathering activities, thereby helping the incumbent to better decide whether to accommodate or fight. Huberts et al (2019) examined an incumbent‐entry framework with stochastic evolution of demand, finding that the incumbent invests earlier than the entrant.…”