Competitive Reputations As Entry Deterrents

Competitive Reputations As Entry Deterrents

By David Bruce Montgomery, Bruce Clark
1994Working Paper No. 1283

This research examines how a market incumbent's competitive reputation with a potential entrant can deter market entry. The authors develop a psychologically-based set of propositions regareding the antecedents and consequences of an incumbent's reputation for being a credible defender of its markets, particularly the incumbent's reputation for aggressiveness and intelligence. An experimental test of the propositions suggest that an aggressive reputation can deter potential entrants, and that this reputation can be cultivated by vigorous marketing activity and previous marketplace success. The incumbent's competitive relationship with the entrant also affects how reputation can lead to deterrence.