Financially Constrained Entry in a Game with Incomplete Information

In an earlier paper we presented an entry game with a monopolist and a potential entrant facing financial constraints in which the unique perfect equilibrium involved no entry. Here we consider a one-sided, incomplete information variant of the game in which the monopolist allows for the possibility that the entrant is committed to endure a price war to the limit of his capability. We find a unique sequentially perfect equilibrium in which entry sometimes occurs. When it does, predatory price wars may result, with the incumbent sometimes driving out the entrant but other times eventually abandoning the fight.