Entry Deterrence of Capacitated Competition Using Price and Non-Price Strategies

Huaqing Wang, Haresh Gurnani, Murat Erkoc

Research output: Contribution to journalArticlepeer-review

21 Scopus citations


We analyze the role of pricing and branding in an incumbent firm's decision when facing competition from an entrant firm with limited capacity. We do so by studying two price competition models (Stackelberg and Nash), where we consider the incumbent's entry-deterrence pricing strategy based on a potential entrant's capacity size. In an extension, we also study a branding model, where the incumbent firm, in addition to pricing, can also invest in influencing market preference for its product. With these models, we study conditions under which the incumbent firm may block the entrant (i.e., prevent entry without any market actions), deter the entrant (i.e., stop entry with suitable market actions) or accommodate the entrant (i.e., allow entry and compete), and how the entrant will allocate its limited capacity across its own and the new market, if entry occurs. We also study the timing difference between the two different dynamics of the price competition models and find that the incumbent's first-mover advantage benefits both the incumbent and the entrant. Interestingly, the entrant firm's profits are not monotonically increasing in its capacity even when it is costless to build capacity. In the branding model, we show that in some cases, the incumbent may even increase its price and successfully deter entry by investing in consumer's preference for its product. Finally, we incorporate demand uncertainty into our model and show that the incumbent benefits from demand uncertainty while the entrant may be worse off depending on the magnitude of demand uncertainty and its capacity.

Original languageEnglish (US)
Pages (from-to)719-735
Number of pages17
JournalProduction and Operations Management
Issue number4
StatePublished - Apr 1 2016


  • branding
  • capacity
  • competition
  • game theory
  • pricing

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation


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