Measuring Deterrence Motives in Dynamic Oligopoly Games.

This article develops a novel decomposition approach to measure deterrence motives in dynamic oligopoly games, providing a formal, scale-free metric that quantifies the proportion of entry motives attributable to deterrence. The framework distinguishes between direct effects (immediate profit impacts) and strategic effects (influences on rivals' future behavior), defining deterrence broadly as aggressive entry aimed at preventing rival entry or forcing rival exit. An empirical application to the Canadian coffee chain industry in Toronto (1989–2005), involving Coffee Time, Country Style, Starbucks, and Tim Hortons, reveals that deterrence motives are significant—especially for Starbucks, whose deterrence motives can account for up to 43% of entry motives in certain market types. Counterfactual simulations show that eliminating deterrence motives reduces Starbucks' outlet growth and market share, while increasing presence of smaller rivals, illustrating the impact of deterrence on market structure and industry dynamics. The paper also compares its counterfactual approach to existing methods, emphasizing its preservation of direct competition effects while removing deterrence incentives in future periods.