Both through empirical research and laboratory experiments it has been shown that managers are heterogeneous in strategic thinking-i.e., not all the managers can accurately conjecture their competitors’ behavior and actions. In this paper, we examine the entry deterrence/accommodation strategy of an incumbent firm facing a potential entrant that may behave less strategically than the incumbent in the way of conjecturing competitors’ actions and beliefs. We adapt the Cognitive Hierarchy model to capture this heterogeneity among the managers of the entrant firm and the incumbent firm. Surprisingly, we show that the incumbent can deter entry by investing in expanding the market size and the competition may increase the incumbent’s incentive to invest in market expansion. If entry does occur, the market expansion in our model also benefits entrant comparing to the case without market expansion. This feature of our result sets it apart from the standard result in the entry deterrence literature, which tends to suggest that incumbent has to either over-invest in actions harmful to entrant if entry occurs. In our model investing in expanding the market size makes the entrant to update its belief about the incumbent’s strategic thinking capability downward and thus, decreases the entrant’s expected profitability, which in turn deters entry. Our research has important implications especially for emerging markets given that the lack of management talent is a particularly severe problem among local firms in emerging markets and multinational companies pioneer in the emerging markets with great market expansion opportunities have to face the potential entry of local companies.

中文翻译：

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战略思维能力不强的入境威慑/住宿

通过经验研究和实验室实验都表明，经理人在战略思维上是异质的，即，并非所有经理人都能准确地推测出竞争对手的行为和行动。在本文中，我们研究了面临潜在进入者的在位企业的进入威慑/适应策略，这种潜在进入者在推测竞争对手的行为和信念方面的策略可能不及在位者。我们采用认知层次模型来捕获进入公司和现任公司经理之间的这种异质性。令人惊讶的是，我们表明，在位者可以通过扩大市场规模进行投资来阻止进入，而竞争可能会增加在位者投资于市场扩张的动力。如果确实发生，与没有市场扩展的情况相比，我们模型中的市场扩展也使进入者受益。我们的结果的这一特征使其与进入威慑文献中的标准结果不同，后者倾向于表明，如果发生进入，现任企业必须对不利于进入者的行动进行过度投资。在我们的模型中，扩大市场规模的投资使进入者向下更新了对现任者的战略思维能力的信念，从而降低了进入者的预期获利能力，从而阻碍了进入。