Entry Deterrence by an Insecure Monopolist

• An insecure monopolist fears the entry of a second firm, and could react in one of two ways:
  • A passive strategy: allow the second firm to enter the market
  • An entry-deterrence strategy: try to prevent the firm from entering

• The threat of entry will force the monopolist to act like a firm in a market with many firms, picking a low price and earning a small profit.

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