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In this paper, we investigate the possibility that a dominant firm will encourage rather than deter entry of a potential competitor. We find that entry can be encouraged by a dominant firm in order to induce a new entrant to resolve the demand uncertainty in a new market. We propose a specific incentive mechanism that the incumbent can use to encourage entry and find plausible circumstances under which entry encouragement is a dominant competitive strategy.
Key wordsEntry Demand Uncertainty Incentives Competitive Strategy
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