Entry into a network industry is modeled focusing on consumers’ expectations formation through higher order beliefs. Equilibrium expectations are endogenous and depend on prices, acting as a coordination device among consumers. The model is able to account for aggressive pricing policies by the incumbent and by the entrant. Both exclusion and entry are possible outcomes (depending on parameter values). The threat of entry is beneficial to consumers, even when unsuccessful.
|Number of pages||13|
|Journal||THE B.E. JOURNAL OF ECONOMIC ANALYSIS & POLICY|
|Publication status||Published - 2008|