The impact of uncertainty about demand growth on preemption

In this article, I analyze the ability of an incumbent firm to preempt a new market before a new entrant does, when the firms face uncertainty about demand growth. I show that entry of the outside firm occurs with nonzero probability when the entry threat is sufficiently low. Eaton and Lipsey's (Economica 46 (1979) 149) intuition that "the more erratic and unpredictable is market growth, the greater the possibility of new firms entering to serve part of the expanding market" is not always confirmed. The probability of entry of the outside firm might either increase or decrease with the degree of uncertainty.