Entry Deterrence with Partial Reputation Spillovers

Abstract

We analyze a two-period, two-market chain-store game in which an incumbent's conduct in one market is only sometimes seen in the other. This partial observability generates reputational spillovers across markets. We characterize equilibrium behavior by prior reputation: at high priors the strategic incumbent fights a lone early entrant (and mixes when both arrive together); at low priors it mixes against a single entrant and accommodates coordinated entry. Greater observability increases early fighting yet, because any accommodation is more widely noticed, raises the incidence of later entry. The results are robust to noisy signals and endogenous information acquisition, and extend naturally to many markets.