Suppose a market is currently served by an incumbent firm.If a potential entrant can enter prior to the incumbent firm announcing its output (or price), the incumbent cannot deter entry through its actions.

Question

Quizplus · Accepted Answer

If the potential entrant can enter the market before the incumbent firm announces its output or price, then the incumbent cannot take actions to deter entry. This is because the incumbent does not yet have information about the move of the potential entrant, so it cannot react in a strategic manner. However, if the incumbent has already announced its output or price, and the potential entrant enters the market afterwards, then the incumbent may take strategic actions to deter entry, such as lowering its price or increasing its output to make it less attractive for the potential entrant to enter.

Suppose a Market Is Currently Served by an Incumbent Firm