The commitment value of unobservable investment with cost-reducing eects is examined in an entry model where the incumbent is privately informed about his costs of production. We show that when the price signals incumbent's costs, unobservable investment can not have any commitment value and the limit price does not limit entry. By contrast, if the price does not reveal costs, which is the more likely outcome, unobservable investment has a magnied value of commitment and a less aggressive limit price deters protable entry.
Private Information and the Commitment Value of Unobservable Investment
D'AMATO, Marcello
2018-01-01
Abstract
The commitment value of unobservable investment with cost-reducing eects is examined in an entry model where the incumbent is privately informed about his costs of production. We show that when the price signals incumbent's costs, unobservable investment can not have any commitment value and the limit price does not limit entry. By contrast, if the price does not reveal costs, which is the more likely outcome, unobservable investment has a magnied value of commitment and a less aggressive limit price deters protable entry.File in questo prodotto:
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