Review of Industrial Organization

, Volume 1, Issue 3, pp 190–205 | Cite as

Economies of scale, strategic advertising and fully credible entry deterrence

  • Jeffrey Baldani
  • Robert T. Masson


Recent work on entry deterrence has emphasized the distinction between a monopolist’s reversible and irreversible preentry strategic moves (e.g., limit pricing) will not credible deter a rational potential entrant. Dixit (1980) and other have demonstrated, however, that irreversible preentry capacity investments can result in credible deterrence. In this paper, we examine preentry advertising investments which irreversibly alter postentry demand conditions. Using an infinite horizon model, we show that preentry investments in advertising may result in credible deterrence even for the extreme case where an entrant expects a collusive postentry price, and the monopolist ceases all advertising at the moment of entry.


Market Share Perfect Information Potential Entrant Entry Decision Stackelberg Leader 
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Copyright information

© Review of Industrial Organization 1984

Authors and Affiliations

  • Jeffrey Baldani
    • 1
  • Robert T. Masson
    • 2
  1. 1.Colgate UniversityUSA
  2. 2.Cornell UniversityUSA

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