Journal article
When should a firm expand its business? : The signaling implications of business expansion
International journal of industrial organization, Vol.29(6), pp.729-745
11/01/2011
Abstract
We examine an incumbent's trade-off between the improved efficiency that business expansion facilitates and the signaling role that business expansion plays in conveying information to potential entrants about the state of demand. We demonstrate that both separating and pooling equilibria survive the Intuitive Criterion. Essentially, in contrast to models with asymmetric information about unit cost, incumbents' benefits from investing in a signal are not necessarily monotonic in the state of demand. We investigate how the extent of informativeness of the outcome depends on the enhanced efficiency that the incumbent's expansion facilitates and the priors of the entrant. (C) 2011 Elsevier B.V. All rights reserved.
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Details
- Title
- When should a firm expand its business?
- Creators
- Ana Espinola-Arredondo - Washington State UniversityEsther Gal-Or - University of PittsburghFelix Munoz-Garcia - Washington State University
- Publication Details
- International journal of industrial organization, Vol.29(6), pp.729-745
- Academic Unit
- Economic Sciences, School of
- Publisher
- Elsevier
- Number of pages
- 17
- Identifiers
- 99900971340701842
- Language
- English
- Resource Type
- Journal article