This paper analyses how environmental regulation can be used by an incumbent firm to deter entry to an industry manufacturing a product which uses a natural resource. The model shows how the threat of entry causes the incumbent to increase both sales and the resource dependence of its product. This forces rivals out of the market as the regulatory limit on total resource use is reached; in this way, the incumbent can protect the value of any future patents on substitute products. The specific example of accumulation of agricultural chemicals in groundwater is considered. A case study of herbicide use in Italy provides qualitative support for the theory.