Abstract

It is shown that an incumbent seller who faces a threat of entry into his or her market will sign long-tern contracts that prevent the entry of some lower-cost producers even though they do not preclude entry completely. Moreover, when a seller possesses superior information about the likelihood of entry, it is shown that the length of the contract may act as a signal of the true probability of entry.

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Citation

Bolton, Patrick, and Philippe Aghion. "Contracts as a Barrier to Entry." American Economic Review 77, no. 3 (June 1987): 388-401.

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