Credible spatial preemption in a mixed oligopoly

In this paper, we consider a public incumbent firm who produces multiple products and a private potential foreign entrant who contemplates on entering the market. Contrary to Judd (Rand J Econ 16:153–166, 1985) that preemption of the private incumbent by overcrowding the product space is not a credible threat of intense postentry competition if the exit cost of the incumbent is low, we show that if the incumbent is a public firm who cares about consumer surplus as well, the public incumbent’s preemption can credibly threaten an entrant with intense postentry competition without exiting after entry into the same location as the incumbent’s. Paradoxically, entering the identical location as the incumbent does not occur in the case of a public incumbent who relatively favors entry (inducing low consumer prices), whereas entry can occur in the case of a private incumbent who does not want entry. However, we also show that the incumbent can encourage entry by choosing its locations to leave enough room for the entrant so that the entrant can profitably enter locations far from the incumbent.