Competitive Reputations, Multimarket Competition and Entry Deterrence

Competitive Reputations, Multimarket Competition and Entry Deterrence

By David Bruce Montgomery, Bruce Clark
1996Working Paper No. 1414

This research examines how a market incumbent's competitive reputation with a potential entrant can deter market entry in the context of multimarket competition. The authors use a judgment experiment to examine this relationship. In a setting where a potential entrant is already engaged with an incumbent in another market, the study manipulates the incumbent's reputation for aggressiveness and intelligence, and measures the reputational effect on the entrant's perceptions of the new market. The study shows that an incumbent's reputation for aggressiveness, but not intelligence, makes a market less attractive and more risky to a potential entrant. Further, reputation has a stronger effect when degree of multimarket contact is high._x000B__x000B_Keywords: competition, decision making, strategy, perception, market entry