Abstract
A model with one incumbent and one entrant is analyzed, where the incumbent has better information about the reservation price of the sellers of the input. If there are only two different reservation prices, then limit pricing deters entry completely, if the entry fee is not too low. For low values of the entry fee, entry is deterred with a positive probability. Limit pricing takes the form in which both input and output prices tend to be higher than under complete information. The adverse effect of limit pricing on consumers′ welfare is therefore somewhat clearer than in the "classical" limit pricing models. If there is a continuum of possible reservation prices, then entry is completely deterred in all pure strategy perfect Bayesian equilibria. Journal of Economic Literature Classification Numbers: C72, D82, L13.
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