COMMITMENT, REPUTATION, AND ENTRY DETERRENCE

The model is a variant on the second model in Selten′s paper (1978, Theory and Decision9, 127-157) on the chain store paradox. In equilibrium, uncertainty about the incumbent′s strength is determined endogenously. In all signalling equilibria, the entrants may challenge the incumbent in the first period. More importantly, the entrants may be deterred from further entry even if the incumbent is weak in some period so long as subsequent predatory behavior occurs soon enough. The predatory strike has to be soon enough in order to have any deterrence effect. Journal of Economic Literature Classification Numbers: C70, C72, C79, D82, L10, L19. © 1993 Academic Press. All rights reserved.