Stackelberg Part 2: Introduction to Entry Deterrence

In this video I move from the standard model of Stackelberg competition by imposing an entry cost on the entrant. I show, graphically, how the incumbent may benefit from blocking entry. I calculate firm 2 profit as a function of firm 1 quantity and generally introduce the concept of deterring entry by flooding the market with q1 until firm 2 profits turn to losses.
Note that there was an error in the setup of this video. The monopoly quantity should be 170, not 160. I must have carelessly used the wrong MC for the monopoly problem. This does not change the basic concept behind how entry deterrence can be a profit maximizing strategy. It does not change the substance of the video, but it is worth pointing out.

[@MattBirch]

Note that there was an error in the setup of this video. The monopoly quantity should be 170, not 160. I must have carelessly used the wrong MC for the monopoly problem. This does not change the basic concept behind how entry deterrence can be a profit maximizing strategy. It does not change the substance of the video, but it is worth pointing out. Perhaps I will recreate this video at some point in the future, but for now, this comment will suffice.

[@rayli2221]

I try to understand where q1 = 160 come from under monopoly? with MC = 30 for firm 1, wouldnt q1 monopoly output be 170

[@MattBirch]

Aw crap. You are right. That'll teach me to not actually solve it live...