The Analyses of Strategic Deterrence Effect's Impact on Strategic Alliance's Decision-Making Based on Horizontally Differentiated Product Market

In this paper, we used the Salop?s circular city model to analyze the effect of strategic alliance to the potential entrant?s enter decision, and the alliance room for the incumbents themselves, under the horizontally differentiated product market. Here we used a three stages game model, and consider the decrease of marginal cost to be the main function of alliance. What?s difference in this paper is that: Strategic alliance may not only have direct profit for the firms, but also have indirect profit for them, which come from deterring the potential entrant. So, the effect of entry deterring enlarges the alliance room of the incumbents.