Strategic entry deterrence through spatial price discrimination

This paper explores the strategic properties of pricing rules. We show that spatial price discrimination may be used for entry deterrence purposes, while f.o.b. pricing policies are better to accommodate entry. Commitment to a pricing policy changes the form of competition in the post-entry game. Discriminatory pricing makes the incumbent 'tough' whereas f.o.b. makes the incumbent 'soft' and is the optimal policy when entry has to be accommodated. When there is no commitment to a pricing policy, under asymmetric information, the existing firm may use delivered pricing policies to deter entry. © 1998 Elsevier Science B.V.