Threat of entry, asymmetric information, and pricing
Article first published online: 7 SEP 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 34, Issue 4, pages 426–444, April 2013
How to Cite
Seamans, R. C. (2013), Threat of entry, asymmetric information, and pricing. Strat. Mgmt. J., 34: 426–444. doi: 10.1002/smj.2017
- Issue published online: 26 FEB 2013
- Article first published online: 7 SEP 2012
- Accepted manuscript online: 23 AUG 2012 10:26AM EST
- Manuscript Revised: 21 AUG 2012
- Manuscript Received: 10 JUN 2010
- information economics;
- incumbent response;
- cable TV
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. Copyright © 2012 John Wiley & Sons, Ltd.