Reputational Deterrence and the Scope of Entry

Rubik Khachatryan and Georgy Lukyanov

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Abstract: Reputation models usually treat a later rival's entry decision as binary. We allow the rival to choose an entry portfolio after observing how an incumbent treated an earlier pioneer. The incumbent has privately known response capability, and responses across markets draw on a shared convex resource. Wider entry therefore dilutes defense in each market even as total defense rises, so entry scope does not cancel from reputational incentives. Greater visibility of the pioneer episode induces more imitation by a low-capability incumbent. Conditional on a verified fight, the record then becomes less diagnostic of high capability and the challenger chooses a weakly broader portfolio. The adjustment can be discontinuous: because only points on the upper concave hull of portfolio payoffs are selected, an intermediate scale can leave the hull as credibility falls, shifting positive probability mass directly to broader entry. We characterize the mechanism for any finite number of markets and identify its two sharp boundaries. With one market there is no scope margin, while with additive defense entry scale again cancels from the reputational calculation.

Date: 2025-10, Revised 2026-07
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-mic
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