Contracts as a Barrier to Entry
Philippe Aghion and Patrick Bolton
The American Economic Review
Vol. 77, No. 3 (Jun., 1987), pp. 388-401
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/1804102
Page Count: 14
You can always find the topics here!Topics: Incumbents, Contracts, Cost of entry, Fees, Information asymmetry, Liquidated damages, Antitrust, Trade, Machinery, Customers
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It is shown that an incumbent seller who faces a threat of entry into his or her market will sign long-term contracts that prevent the entry of some lower-cost producers even though they do not preclude entry completely. Moreover, when a seller possesses superior information about the likelihood of entry, it is shown that the length of the contract may act as a signal of the true probability of entry.
The American Economic Review © 1987 American Economic Association