All else equal, the greater the cost of a commitment to prevent a rival firm from entering the market, the less likely the commitment will be undertaken.

Question

Quizplus · Accepted Answer

This statement is based on the concept of strategic deterrence, which suggests that firms will only make a costly commitment to deter rivals from entering the market if the expected gains from deterring entry exceed the cost of the commitment. Thus, if the cost of the commitment is too high, the firm is less likely to undertake it.

All Else Equal, the Greater the Cost of a Commitment