Strategic Entry Deterrence

Abstract

In analyzing deterrence of large-scale entry, two classes of entry barriers may be distinguished. An innocent entry barrier is unintentionally erected as a side effect of innocent profit maximization. In contrast, a strategic entry barrier is purposely erected to reduce the possibility of entry. Two types of innocent barriers may also be distinguished. A postentry absolute advantage has the property that, if entry did occur, the established firm would be at a profit advantage over the entrant. Examples are superior technology or product design, patents, and lower input prices. A preentry asymmetry advantage arises from the fundamental preentry asymmetry between established firm and potential entrant. Before the entrant makes his entry decision, the established firm has already committed resources. This prior existence gives first-move advantages. The preentry asymmetry is independent of symmetry or asymmetry in the rules (the equilibrium concept) of the postentry game that might ensue; even if the postentry game will be played according to Nash-Cournot or entrant-as-leader rules, the preentry leadership