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Uncertainty, Economies of Scale, and Barrier to Entry

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  • Perrakis, Stylianos
  • Warskett, George

Abstract

Entry deterrence is examined under demand uncertainty and economies of scale. Both incumbent and potential entrant select capacity before demand is observed, provided expected discounted profit exceeds the cost of cap acity (risk neutrality). As in the certainty case, entry deterrence is not profi table in the absence ofeconomies of scale. However, Schmalensee recently proved another certainty result (that the monopoly profit stream which can be shielded from entry by economies of scale is bounded from above by the cost of minimum e fficient scale) is not valid in the presenceof uncertainty, even under risk neu trality. Copyright 1986 by Royal Economic Society.

Suggested Citation

  • Perrakis, Stylianos & Warskett, George, 1986. "Uncertainty, Economies of Scale, and Barrier to Entry," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 58-74, Suppl. No.
    • Handle: RePEc:oup:oxecpp:v:38:y:1986:i:0:p:58-74
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    Cited by:

    1. Kryzanowski, Lawrence & Perrakis, Stylianos & Zhong, Rui, 2021. "Financial oligopolies and parallel exclusion in the credit default swap markets," Journal of Financial Markets, Elsevier, vol. 56(C).
    2. Constantatos, Christos & Perrakis, Stylianos, 1997. "Vertical differentiation: Entry and market coverage with multiproduct firms," International Journal of Industrial Organization, Elsevier, vol. 16(1), pages 81-103, November.

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