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Limit Pricing and Uncertain Entry

Morton I. Kamien and Nancy L. Schwartz
Econometrica
Vol. 39, No. 3 (May, 1971), pp. 441-454
Published by: The Econometric Society
DOI: 10.2307/1913258
Stable URL: http://www.jstor.org/stable/1913258
Page Count: 14
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Limit Pricing and Uncertain Entry
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Abstract

The situation in which a seller is aware that his pricing policy will affect the probability of entry of competing suppliers is studied. The seller's optimal price policy is developed under the assumption that the entry probability is a non-decreasing function of product price and that the objective is present value maximization. It is shown that the optimal pare-entry price tends to fall as the discount rate drops, the market growth rate rises, the post-entry profit possibilities decline, or certain non-price barriers to entry fall.

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