Entry Blockading Locations

How does asymmetric information (regarding production costs) in a spatial market alter the behavior of the incumbent firm which can credibly commit to her location choice? Although entry deterrence is irrelevant here, our analysis shows that entry blockading behavior emerges not only as the result of the incumbent's technological advantage but also as the result of the entrant's beliefs concerning this technological advantage. Using the concept of K-undefeated equilibrium, we characterize the unique location equilibrium for different values of the fixed and variable costs and we show that the conjecture formed by the entrant regarding the incumbent's location strategy does matter for the determination of the equilibrium strategies. First, we show that the market center may be an entry blockading location under incomplete information for a high cost inefficient incumbent who would accommodate entry under complete information. Second, we show that a low cost efficient incumbent who blockades entry at the market center under complete information may be better off to accommodate entry under incomplete information.
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