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Credible Retaliatory Entry And Strategic Toe‐Holds

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  • Zhiqi Chen
  • Thomas W. Ross

Abstract

The anticipated profits from entry by an established firm into a new market will depend on how incumbents in that market are expected to respond. One possibility, suggested by cases and the literature, is that an incumbent may respond with ‘retaliatory entry’ into the first entrant's ‘home’ market. The model presented here describes conditions under which this can be a credible threat that deters the first entry. When the conditions are such that it is not credible, the paper shows how firms can provide credibility through the establishment of toe‐hold investments in other markets.

Suggested Citation

  • Zhiqi Chen & Thomas W. Ross, 2009. "Credible Retaliatory Entry And Strategic Toe‐Holds," Journal of Industrial Economics, Wiley Blackwell, vol. 57(2), pages 343-352, June.
    • Handle: RePEc:bla:jindec:v:57:y:2009:i:2:p:343-352
    DOI: 10.1111/j.1467-6451.2009.00376.x
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    References listed on IDEAS

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    1. Edward M Graham, 1998. "Market Structure and the Multinational Enterprise: A Game-theoretic Approach1," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 29(1), pages 67-83, March.
    2. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
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    1. Zhiqi Chen & Thomas Ross, 2007. "Markets Linked by Rising Marginal Costs: Implications for Multimarket Contact, Recoupment, and Retaliatory Entry," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 31(1), pages 1-21, August.

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