So, again, you have the same situation, but now there are three more Starbucks
outlets. So, one more here, one more here, and one
more here. What does that do to the profits of
potential entrants? So, if you open up shop here, then your
almost dead, because here there's going to be one shop here and one shop
there. So, your demand going to be much lower
than in this case on the left. Also, if there's one Starbucks here, then
opening up a coffee shop here is going to mean that you get less
consumers for that shop. So, in other words, by opening up more
outlets than might be optimal without the threat of entry, they were able to
preempt these two potential entrants. And recall, going back to
this picture here, these two would have very well been able to turn a profit if
we had stayed, if Starbucks had stayed at the initial three outlets.
So, in the previous three videos, we've discussed strategies that incumbents can
implement to keep a potential entrant out of the market.