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Barriers to entry : abolishing the barriers to understanding

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  • Keppler, Jan Horst

Abstract

BARRIERS TO ENTRY: ABOLISHING THE BARRIERS TO UNDERSTANDING by Jan-Horst Keppler Professor of economics Université Paris – Dauphine, LEDa, and Université Paris I Panthéon-Sorbonne, PHARE Port.: (+33 6) 77 81 37 46; Email: jan.keppler@dauphine.fr. Abstract The concept of a barrier to entry has been discussed least since Bain (1956) with important contributions by Spence (1977), Dixit (1980) or Milgrom and Roberts (1982). The more recent discussion is synthesized in the contributions to a dedicated session at the 2004 AEA meeting. Yet, a “barrier to entry” remains a surprisingly elusive concept, which even accomplished theorist fail to define in an unequivocal manner. This article shows that past and current contributions to the subject fail to resolve the issue, because they insist on analyzing barriers to entry in the context of identical firms in homogenous goods industries. This inevitably leads to logical inconsistencies as each theorist provides his own ad hoc definition of a barrier to avoid Bertrand competition. We show that the notion of a barrier to entry has economic pertinence only if interpreted as a fully sunk cost in the form of a unique, indivisible, non tradable factor of production. This however, implies monopolistic competition with welfare implications of a barrier to entry being positive as well as negative. Regulators thus need to ensure the ability of all competitors to create their own welfare-enhancing “barriers to entry” in a dynamic context rather than to focus on their existence in purely negative and static terms.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 44242.

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Date of creation: 2009
Date of revision: 2009
Publication status: Published in Journal of Public Finance and Public Choice 27 (2-3).27(2009): pp. 99-124
Handle: RePEc:pra:mprapa:44242

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Related research

Keywords: Key Words: Barriers to entry; sunk cost; irreversibility; monopolistic competition; regulation JEL Classifications: B21; D21; D24; D43; G18;

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  1. Keppler, Jan Horst, 1998. "The Genesis of 'Positive Economics' and the Rejection of Monopolistic Competition Theory: A Methodological Debate," Cambridge Journal of Economics, Oxford University Press, vol. 22(3), pages 261-76, May.
  2. Dixit, Avinash, 1979. "The Role of Investment in Entry-Deterrence," The Warwick Economics Research Paper Series (TWERPS) 140, University of Warwick, Department of Economics.
  3. Keppler, Jan Horst, 1998. "Externalities, Fixed Costs and Information," Kyklos, Wiley Blackwell, vol. 51(4), pages 547-63.
  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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