The Dixit (1980) hypothesis that incumbents use investment in capacity to deter potential entrants has found little empirical support. Bagwell and Ramey (1996) propose a model where, in the unique game-theoretic prediction based on forward induction or iterated elimination of weakly-dominated...

We study the behavioral drivers of market entry. An experiment allows us to disentangle the impact on entry across different types of markets of two key behavioral mechanisms: overconfidence and attitude toward ambiguity. We theorize and show that the causal effect of overconfidence on entry is...