Notes
Outline
Barriers to entry.
Monopoly model and Cournot model both assume no threat of entry.
Barriers to entry.
Barriers to entry.
Relative cost advantages.
Can factors like capital costs or advertising expenditures be barriers just because they are high?
Relative cost advantages.
Relative cost advantages.
Strategic entry deterrence.
Can an incumbent use strategy to deter large-scale entry?
Remember: we are assuming firms have identical costs.
Strategic entry deterrence.
Strategic entry deterrence.
A potential entrant who believes the threat to maintain output will be deterred.
Strategic entry deterrence.
Strategic entry deterrence.
Incumbent invests C (a sunk cost) in (for example) excess production capacity useful only in the event of a price war.
Strategic entry deterrence.
Does this mean that strategic commitments save the Bain-Sylos account of barriers to entry?
Absolute cost advantages.
Absolute cost advantages.
Absolute cost advantages.
Not all absolute cost barriers are policy relevant.
A barrier is policy relevant if removing the barrier will improve economic efficiency.
Example: Superior knowledge or technology.
Raising rivals’ costs.
Investing resources to create cost advantages.
It may pay to raise rivals’ costs even if it means raising your own.
Example: the strategic
use of regulation.
Margarine and whiskey.
Barriers and property rights.
All cabs must hold a taxi medallion.
Limited by law to 12,187.
But incumbents do not have a cost advantage.
Insider-outsider distinction fails to identify a barrier.
Barriers and property rights.
Barriers and property rights.
Barriers to entry ultimately reduce to rights over assets.
Do the benefits of the barrier (right) outweigh the costs?
Rights (barriers) solve problems of externality.
Ordinary property rights.
Taxi medallions?
Transferable pollution quotas.
Barriers and property rights.
Barriers and property rights.
Scarcity rents.
Scarcity rents.
Scarcity rents.
Scarcity rents.
Scarcity rents.
Kinds of knowledge inputs.
Explicit knowledge as a public good.
Tacit and poorly understood routines.
May also be linked to specific asset or site.
Can the innovator replicate the input?
Can competitors imitate the input?
Patents and secrecy.
Complexity and ambiguity.
Scarcity rents.
Barriers to entry.
Barriers to entry always reduce to property rights over a scarce factor.
Efficiency or inefficiency
of a barrier depends on:
Costs/benefits
of exclusion.
Demand and
cost conditions.