As is well-known, the most important cases of new entry in the modern economy are those which are achieved by already established firms for the purpose of diversification. We are interested in these cases because already established firms enjoy various advantages upon entry. One of the most important advantages is the fact that they can obtain profits in an industry where they have already been engaged in production. We construct our model attaching importance to this fact. The other essential assumption concerns extant firms' reaction. We assume that the reactionary patterns of extant firms are confined to two patterns-i. e., aggressive and collusiveand that potential entrants know these two patterns although they are uncertain as to which of the two patterns will be actually adopted in case of entry. We assume that potential entrants maximize their expected utility of total profits obtained both from the newly engaged industry and their originally engaged industry.
Through the examination of the properties of entry-preventing price, the following conclusions are obtained:
(1) It is easier for large firms to enter than small firms.
(2) It is easier for potential entrants to enter into an industry where ρ is small. (ρ: the coefficient of correlation between the profits which it expects to obtain in the newly engaged industry and the profits which it expects to obtain in its originally engaged industry.)
(3) The instability of the industry is not necessarily an impeding factor against entry.
(4) The instability of the profits which the potential entrant obtains from the originally engaged industry affects the easiness of entry.