Entry for Buyout

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The possibility of buying out an entrant has an important effect on entry deterrence. Entrants can blackmail the incumbent by threatening to keep prices low, and buyout can make entry profitable which otherwise would not be. In particular, the entry deterrence policy of excess capacity to reduce the post-entry price can not only fail, but work against the incumbent. The presence of multiple oligopolistic incumbents or multiple potential entrants, however, can discourage entry for buyout.