If natural (or innocent) entry barriers in an industry are sufficiently large, entry is said to be blockaded for additional firms. In some markets, entry barriers are at a level that only a single firm can enter. In such a situation, the single incumbent firm can behave as a monopolist without fearing entry. In contrast, for lower entry barriers, entry is a threat that the incumbent cannot ignore. Facing potential entry, the incumbent will thus react strategically with a view either to make entry unprofitable or, at least, to minimize the harm that entry causes. Entry is said to be deterred in the former case, and accommodated in the latter.

Because an incumbent is already established in the industry, it has the advantage of being able to act before a potential entrant decides whether or not to enter. However, acting before is not sufficient to influence the entrant's decision: the incumbent must also act in a credible way. We already raised this issue in Chapter 4 when analysing the Stackelberg game. In the present context, a threat to make the entrant's life impossible or hard if it enters can only be effective if this threat is turned into a commitment. That is, the incumbent's action must modify its incentives in such a way that if entry was to happen, it would be in the incumbent's best interest to carry out the threat.