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Sunk Costs and Antitrust Barriers to Entry

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  • Rchard Schmalensee

Abstract

US antitrust policy takes as its objective consumer welfare, not total economic welfare. With that objective, Joe Bain's definition of entry barriers is more useful than George Stigler's or definitions based on economic welfare. It follows that economies of scale that involve sunk costs may create antitrust barriers to entry. A simple model shows that sunk costs without scale economies may discourage entry without creating an antitrust entry barrier.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/0002828041301975
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 94 (2004)
Issue (Month): 2 (May)
Pages: 471-475

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Handle: RePEc:aea:aecrev:v:94:y:2004:i:2:p:471-475

Note: DOI: 10.1257/0002828041301975
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References

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  1. Dennis W. Carlton, 2004. "Why Barriers to Entry Are Barriers to Understanding," American Economic Review, American Economic Association, vol. 94(2), pages 466-470, May.
  2. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  3. Harold Demsetz, 1981. "Barriers to Entry," UCLA Economics Working Papers 192, UCLA Department of Economics.
  4. Preston R. Fee & Hugo M. Mialon & Michael A. Williams, 2004. "What Is a Barrier to Entry?," American Economic Review, American Economic Association, vol. 94(2), pages 461-465, May.
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Citations

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Cited by:
  1. Dr Chiara Rosazza Bondibene, 2012. "A Study of Patent Thickets," NIESR Discussion Papers 11129, National Institute of Economic and Social Research.
  2. Louis Kaplow & Carl Shapiro, 2007. "Antitrust," NBER Working Papers 12867, National Bureau of Economic Research, Inc.
  3. Dennis W. Carlton, 2005. "Barriers To Entry," NBER Working Papers 11645, National Bureau of Economic Research, Inc.
  4. Pindyck, Robert S., 2005. "Sunk Costs and Real Options in Antitrust," Working papers 18233, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. K.P.V. O’Sullivan & Tom Kennedy, 2008. "Supervision of the Irish Banking System: A Critical Perspective," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 6(3), pages 20-26, October.
  6. Cabral, Luís, 2012. "Oligopoly Dynamics," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 278-282.
  7. Ciliberto, Federico & Williams, Jonathan, 2009. "Limited Access to Airport Facilities and Market Power in the Airline Industry," MPRA Paper 24889, University Library of Munich, Germany.
  8. Lambie, N. Ross, 2009. "The role of real options analysis in the design of a greenhouse gas emissions trading scheme," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 47626, Australian Agricultural and Resource Economics Society.
  9. Olender-Skorek, Magdalena, 2012. "To Regulate Or Not to Regulate? – Economic Approach to Indefeasible Right of Use (IRU)," MPRA Paper 48548, University Library of Munich, Germany.
  10. Mario Mariniello, 2013. "Should Variable Cost Aid to Attract Foreign Direct Investment be Banned? A European Perspective," Journal of Industry, Competition and Trade, Springer, vol. 13(2), pages 273-308, June.
  11. Robert S. Pindyck, 2009. "Sunk Costs and Risk-Based Barriers to Entry," NBER Working Papers 14755, National Bureau of Economic Research, Inc.

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