The Role of Multiple Potential Entrants/Sequential Entry in Noncooperative Entry Deterrence

A number of authors have recently considered whether the free rider problem is exhibited in models characterized by multiple potential entrants/sequential entry. Bernheim (1984) and Eaton and Ware (1987) find that the free rider problem is not an important factor, while McLean and Riordan (1989) find that it is. In this article I identify a general property whose presence is important for whether a model of noncooperative entry deterrence exhibits a free rider problem, and in this way help clarify why the above-mentioned authors reach these diverse conclusions. The article also demonstrates that quite plausible changes in the specifications of both Bernheim and Eaton and Ware lead to incumbent firms underinvesting in entry deterrence.