Threat of entry, asymmetric information, and pricing

Robert C. Seamans

    Research output: Contribution to journalArticle

    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 U.S. 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.

    Original languageEnglish (US)
    Pages (from-to)426-444
    Number of pages19
    JournalStrategic Management Journal
    Volume34
    Issue number4
    DOIs
    StatePublished - Apr 2013

    Keywords

    • cable TV
    • entry
    • incumbent response
    • information economics
    • price

    ASJC Scopus subject areas

    • Business and International Management
    • Strategy and Management

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