To Deter a Potential Entrant, an Existing Firm in a Market

question 143

Multiple Choice

To deter a potential entrant, an existing firm in a market may threaten to sharply increase production so that the entrant will be left with a small share of the market. The firm can make this threat credible by limiting its own options, and possible actions of this type include:

• A) signing long-term sales contracts that commit the firm to high levels of output.
• B) building a very large factory that could potentially produce enough output to meet most of the market demand.
• C) signing long-term purchase contracts for large amounts of production inputs.
• D) all of the above

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