Entry deterrence and signaling in a nonrenewable resource model

Stephen Polasky, Okmyung Bin

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

We analyze a nonrenewable resource model in which an incumbent firm faces potential entry from a rival firm. The incumbent has private information about its stock size but the rival can observe extraction. With observable extraction and unobservable stock, the rival can use extraction as a signal about stock, from which it can infer whether entry is likely to be profitable. We characterize the necessary conditions for pooling and separating perfect Bayesian equilibria in a signaling game of resource extraction and provide examples of each. We show that the incumbent will often prefer pooling to separating even though welfare is higher in separating equilibrium.

Original languageEnglish (US)
Pages (from-to)235-256
Number of pages22
JournalJournal of Environmental Economics and Management
Volume42
Issue number3
DOIs
StatePublished - Jan 1 2001

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