Limit pricing when incumbents have conflicting interests

A case wherein two incumbents disagree about the desirability of entry is investigated. Analysis shows that the separating equilibrium is non-distortionary since it requires prices to remain the same as if there was no potential entry. Moreover, it is shown that the separating equilibria will exist only if the gain from deterring or provoking entry is not too large for at least one of the firms, relative to the cost of deviating to the Nash-equilibrium price of the other state.