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Explain the idea of strategic entry deterrence. How does multimarket contact affect firms' abilities to collude? Strategic entry deterrence Strategic moves can be defined as any move that is designed to influence the behaviour of other firms (Schelling, 1960). Strategic entry deterrence therefore involves any action taken by an incumbent firm that seeks to discourage potential entrants from entering into and competing in the market, even if it is not profit maximising to do so in the short-run. This distinction allows us to compare two types of barriers to entry, innocent barriers and strategic barriers (Salop, 1981), the latter of which will be the focus of this section of my essay. Limit Pricing How can a firm strategically discourage entry into its market? If the incumbent firm is producing the monopoly level of output, and thereby making supernormal profits, there is an incentive for new firms to enter the market and attempt to capture...

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