Entry with two correlated signals: the case of industrial espionage and its positive competitive effects

Recent advances in information and communication technologies have increased the incentives for firms to acquire about rivals. These may major implications market entry because they make it easier potential entrants gather valuable about, example, an incumbent’s cost structure. However, little theoretical research has actually analyzed this question. This paper literature by extending a one-sided asymmetric version of Milgrom Roberts’ (1982) limit pricing model. Here, entrant is allowed access intelligence system (IS) certain precision that generates noisy signal on The thus decides whether enter based two signals: price charged incumbent sent IS. Crucially, intermediate values IS precision, set pooling equilibria with ex-ante profitable non-empty. Moreover, probability non-profitable strictly positive. In classical models, never enters equilibrium, so result suggests use potentially increase competition.