Strategic Entry Deterrence Modeling: Literature Review

Denis A. Seliverstov – PhD student of Applied Economics Department, MGIMO-University. 76, Prospect Vernadskogo, Moscow, 119454, Russia. E-mail: DENIS_FP@mail.ru.
 
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DOI 10.24833/2071-8160-2017-5-56-209-232 (Read the article in PDF)

The prime focus in this article is on key findings concerning theoretical aspects of strategic behavior by incumbents to deter market entry of new firms. The author summarizes main lines of scientific research in the topic which give an insight into the patterns of the incumbent’s impact on the behavior of the entrants, the entry deterrence instruments and the consequences of these actions.

Today the free entry markets are considered to be a rare phenomenon. The market entry of new firms is associated with significant entry costs, which allow the incumbents to take advantage of their dominant position and derive positive economic profits. In case of entry threat by potential competitors the incumbents take strategic actions aimed at deterring entry and preserving their dominant position. Among the most efficient strategic actions one can emphasize the erection of additional barriers to entry for the newcomers through producing the limit output and price, investments in sunk assets, capacity expansion and product differentiation. Meanwhile by taking strategic actions the incumbents are not always trying to affect the entrant’s costs and profit directly, they often aim at changing the entrant’s expectations regarding future intentions of the incumbents to preserve dominant position.

Key words: strategic behavior, market entry, entry deterrence, limit output, entry barriers, sunk costs, competition, two-stage games, entrant, incumbent firm.

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