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Sunk Costs and Antitrust Barriers to Entry

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  • Schmalensee, Richard

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.

Suggested Citation

  • Schmalensee, Richard, 2004. "Sunk Costs and Antitrust Barriers to Entry," Working papers 4457-04, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    • Handle: RePEc:mit:sloanp:7384
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    References listed on IDEAS

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    Cited by:

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    5. Lambie, Neil 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.
    6. Hoang, Daniel & Ruckes, Martin, 2014. "The effects of disclosure policy on risk management incentives and market entry," Working Paper Series in Economics 65, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
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    15. K.P.V. O’Sullivan & Tom Kennedy, 2008. "Supervision of the Irish Banking System: A Critical Perspective," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 6(03), pages 20-26, October.
    16. Pindyck, Robert S., 2005. "Sunk Costs and Real Options in Antitrust," Working papers 18233, Massachusetts Institute of Technology (MIT), Sloan School of Management.
    17. 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.
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    22. Mario Mariniello, 2006. "State Aid to Attract FDI and the European Competition Policy: Should Variable Cost Aid Be Banned?," Economics Working Papers ECO2006/41, European University Institute.
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    Keywords

    antitrust; U.S. antitrust policy; entry barriers;
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