Strategic entry deterrence.
Incumbent(s)
choose a limit
price P
I
that
ensures that the
entrant can do
no better than
break even.
So, is the shape
of the cost
curve a barrier
to entry?
AC
$
Q/t
D
Q
E
P
E
Q
I
P
I
Residual demand
Remember that entrant has
same cost curve as incumbent.
