Anticipated Entry and Entry Deterrence: Evidence from the American Casino Industry

Using new data on entry plans into the American casino industry, I find that incumbent firms invest in physical capacity when threatened with a nearby entry plan, and these strategic investments deter eventual entry. Consistent with an entry-deterrence motive, incumbents respond to the threat of entry when entry is uncertain, but not when entry is assured. The average capacity expansion of 2,300 square feet is associated with a 6.8-percentage-point greater likelihood that the entry plan fails. These findings show that investments in deterrence are viable, especially when new entrants face other significant barriers to entry.

Data and the online appendix are available at https://doi.org/10.1287/mnsc.2017.2730.

This paper was accepted by Bruno Cassiman, business strategy.