Figure 2
The horizontal axis is labeled “X”. The horizontal axis shows three marked points labeled “X hat subscript D”, “X hat subscript A”, and “X underline subscript D comma L”. The vertical axis shows two marked values just above the origin, labeled “R double bar” and “R bar”. “R double bar” is positioned above “R bar”. Two concave down curves are shown. The upper curve is labeled “pi subscript D”, and the lower curve is labeled “pi subscript A”. A third curve labeled “pi subscript x equals pi subscript y” decreases concave up toward the horizontal axis. The lower curve and the third curve start at a common point on the vertical axis. The upper curve starts higher on the vertical axis. A vertical dashed line extends upward from the horizontal axis at “X hat subscript D” to the peak of the upper curve. A horizontal dashed line from the vertical axis at “R double bar” extends right to intersect this vertical dashed line on the third curve. A vertical dashed line extends upward from the horizontal axis at “X underline subscript D comma L” to the right side of the upper curve. A horizontal dashed line from this intersection extends left toward the vertical axis. A horizontal dashed line from the vertical axis at “R bar” extends right to intersect the vertical dashed line from “X subscript D comma L” on the third curve. A vertical dashed line extends upward from the horizontal axis at “X hat subscript A” to the peak of the lower curve. Text on the right defines three regions: “0 less than or equal to R less than R bar: entry is accommodated open parenthesis X equals X hat subscript A close parenthesis”. “R bar less than or equal to R less than R double bar: entry is deterred open parenthesis X hat subscript D less than X less than or equal to X underline subscript D comma L close parenthesis”. “R double bar less than R: entry is blocked open parenthesis X equals X hat subscript D close parenthesis”.Incumbent’s optimal strategy under threat of entry by generic rival. Source(s): Figure by author