Don't Forget to Protect Abundant Resources
We examine an entry-deterrence model with multiple incumbents who strategically increase their individual appropriation in order to prevent entry. We show that entry deterrence yields a welfare improvement, relative to contexts of unthreatened entry, if firms exploit a relatively scarce resource. When incumbents compete for an abundant commons, however, their exploitation becomes large, and welfare losses can arise. Hence, our paper suggests that policies that protect the commons from further entry are actually more necessary when the resource is abundant than when it is scarce.
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