Entry Deterrence with Partial Reputation Spillovers

TL;DR

This paper models how partial reputation spillovers across markets influence incumbent strategies in a two-period game, showing that observability levels affect entry deterrence and accommodation behaviors.

Contribution

It introduces a model of partial reputation spillovers across multiple markets, analyzing equilibrium strategies under varying observability and prior reputation levels.

Findings

Higher observability increases early fighting.

Lower priors lead to more accommodation.

Wider notice of accommodation raises later entry incidence.

Abstract

We analyze a two-period, two-market chain-store game in which an incumbent's conduct in one market is only sometimes seen in the other. This partial observability generates reputational spillovers across markets. We characterize equilibrium behavior by prior reputation: at high priors the strategic incumbent fights a lone early entrant (and mixes when both arrive together); at low priors it mixes against a single entrant and accommodates coordinated entry. Greater observability increases early fighting yet, because any accommodation is more widely noticed, raises the incidence of later entry. The results are robust to noisy signals and endogenous information acquisition, and extend naturally to many markets.