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Exit Barriers are Entry Barriers: The Durability of Capital as a Barrier to Entry

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Author Info
B. Curtis Eaton
Richard G. Lipsey

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Abstract

We argue that the effectiveness of capital as an entry barrier depends critically on its durability and that this aspect of capital has been largely ignored. We examine strategic decisions with respect to capital durability in two models. In a broad range of cases an active policy with respect to durability and replacement of capital is necessary to maintain a position of market power. Such policies will result in capital that is "too durable" or "too soon replaced" or "too well maintained" relative to the cost minimizing solution (for a given time path of output).

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Publisher Info
Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 11 (1980)
Issue (Month): 2 (Autumn)
Pages: 721-729
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Handle: RePEc:rje:bellje:v:11:y:1980:i:autumn:p:721-729

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  1. Jean-Pierre Ponssard, 2007. "Productive Efficiency and Contestable Markets," Working Papers hal-00243066_v1, HAL. [Downloadable!]
  2. Schmalensee, Richard., 1980. "Economies of scale and barriers to entry," Working papers 1130-80., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
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  3. Kyle Bagwell & Garey Ramey, 1989. "Oligopoly Limit Pricing," Discussion Papers 829, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  4. Coucke, Kristien, 2005. "Import competition and the exit of firms in belgian manufacturing," Vlerick Leuven Gent Management School Working Paper Series 2005-14, Vlerick Leuven Gent Management School. [Downloadable!]
  5. Mercenier, J. & Schmitt, N., 1992. "Sunk Costs, Free-Entry Equilibrium and Trade Liberalization in Applied General Equilibrium : Implication for "Europe 1992"," Cahiers de recherche 9235, Universite de Montreal, Departement de sciences economiques. [Downloadable!]
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  6. Coucke, K. & Sleuwaegen, L., 2006. "Exit in globalising industries: the role of international (out)sourcing," Vlerick Leuven Gent Management School Working Paper Series 2006-14, Vlerick Leuven Gent Management School. [Downloadable!]
  7. L. Lambertini, 1998. "Equilibrium Locations in A Spatial Model With Sequential Entry in Real Time," Working Papers 326, Dipartimento Scienze Economiche, Universita' di Bologna. [Downloadable!]
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  8. Barbara J. Spencer & James A. Brander, 1983. "International R&D Rivalry and Industrial Strategy," NBER Working Papers 1192, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Michele Cincera & Olivia Galgau, 2005. "Impact of Market Entry and Exit on EU Productivity and Growth Performance," Industrial Organization 0503013, EconWPA. [Downloadable!]
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  10. Bergman, Mats A., 1998. "Endogenous Timing of Investments Yields Modified Stackelberg Outcomes," Working Paper Series in Economics and Finance 272, Stockholm School of Economics. [Downloadable!]
  11. Werner Hölzl, 2002. "Exit, Entry and industry turbulence in Austrian Manufacturing, 1981-1994," Working Papers geewp21, Vienna University of Economics and B.A. Research Group: Growth and Employment in Europe: Sustainability and Competitiveness. [Downloadable!]
  12. Asplund, Marcus, 1995. "What Fraction of a Capital Investment is Sunk Cost?," Working Paper Series in Economics and Finance 68, Stockholm School of Economics, revised 24 Sep 1999. [Downloadable!]
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  13. van Witteloostuijn, Arjen, 1988. "Entry And Exit Barriers: A Note On The Compatibility Of Free Entry And Costly Exit," Working Papers 88-40, C.V. Starr Center for Applied Economics, New York University. [Downloadable!]
  14. Shingo Ishiguro & Laixun Zhao, 2004. "Raising Wages to Deter Entry under Unionization," Discussion Paper Series 155, Research Institute for Economics & Business Administration, Kobe University. [Downloadable!]
  15. Sumon Kumar Bhaumik & Shubhashis Gangopadhyay & Shagun Krishnan, 2006. "Reforms, Entry and Productivity: Some Evidence from the Indian Manufacturing Sector," IZA Discussion Papers 2086, Institute for the Study of Labor (IZA). [Downloadable!]
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  16. Werner Hölzl, 2003. "Tangible and intangible sunk costs and the entry and exit of firms in Austrian Manufacturing," Working Papers geewp33, Vienna University of Economics and B.A. Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  17. Stephen Martin, 2002. "Sunk Cost and Entry," Review of Industrial Organization, Springer, vol. 20(4), pages 291-304, June. [Downloadable!] (restricted)
  18. Jean Pierre Ponssard, 2004. "Rent dissipation in repeated entry games: some new results," Levine's Bibliography 122247000000000082, UCLA Department of Economics. [Downloadable!]
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  19. Gabriel R. G. Benito, 1997. "Divestment of foreign production operations," Applied Economics, Taylor and Francis Journals, vol. 29(10), pages 1365-1378, October. [Downloadable!] (restricted)
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  20. Kyle Bagwell & Garey Ramey, 1990. "Capacity, Entry and Forward Induction," Discussion Papers 888, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  21. James A. Brander & Barbara J. Spencer, 1986. "International Oligopoly and Asymmetric Labour Market Institutions," NBER Working Papers 2038, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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