Entry Deterrence with Public Signals: Revisiting the Chain-Store Paradox

Francesc Dilmé () and Aaron Kolb ()
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Francesc Dilmé: University of Bonn
Aaron Kolb: Kelley School of Business, Indiana University

No 374, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We revisit the classic chain-store paradox by introducing a novel element: the arrival of exogenous, public signals about the incumbent’s private type over time. As the horizon lengthens, two opposing forces come into play. On one hand, standard reputational incentives grow stronger; on the other, the increasing availability of information makes it more difficult to sustain a reputation. We show that full deterrence can still emerge as the horizon grows arbitrarily long, though not always, and we provide a complete characterization of the conditions under which it arises.

Keywords: Entry deterrence; reputation; chain-store paradox (search for similar items in EconPapers)
JEL-codes: C72 C73 (search for similar items in EconPapers)
Pages: 32
Date: 2025-10
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