Entry Regulation under Asymmetric Information about Demand

Abstract EN

We investigate how an incumbent firm can use the regulatory policy about entry and the informational advantage to protect his market position.

This question is studied through the construction of a signalling game where we assume that the regulator has less information about demand than the firms.

We conclude that there is a pooling equilibrium and partially separating equilibria in which entry is deterred and, if demand is high, there will be insufficient entry.

The final effect on welfare depends on the tradeoff between short-run benefits (lower price) and long-run losses (weaker competition).