Entry Deterrence

Entry Deterrence

Under certain circumstances, the leader firm (incumbent firm) may pursue a strategy that keeps their rivals out of the industry and thus, leaving the leader firm as the monopolist.
According to Rubinfeld and Pindyck, To deter entry the incumbent firm must persuade any potential competitor that entry will not be profitable.
Puppy Dog and Top Dog strategy are accommodating entry strategy where the leader firm allows the follower firm to enter the market but compel follower firm to compete with less aggression.
Deterring Entry induces the leader firm to act strategically in a manner that follower firm does not find it financially viable to enter the market. One strategy to deter entry is force the follower firm to incur a substantial sunk cost to enter the market.