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Sunk Costs and Antitrust Barriers to Entry

  • Schmalensee, Richard

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://hdl.handle.net/1721.1/7384
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Paper provided by Massachusetts Institute of Technology (MIT), Sloan School of Management in its series Working papers with number 4457-04.

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Date of creation: 10 Dec 2004
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Handle: RePEc:mit:sloanp:7384
Contact details of provider: Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA
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Order Information: Postal: MASSACHUSETTS INSTITUTE OF TECHNOLOGY (MIT), SLOAN SCHOOL OF MANAGEMENT, 50 MEMORIAL DRIVE CAMBRIDGE MASSACHUSETTS 02142 USA

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  1. 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.
  2. Demsetz, Harold, 1982. "Barriers to Entry," American Economic Review, American Economic Association, vol. 72(1), pages 47-57, March.
  3. 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.
  4. Dennis W. Carlton, 2004. "Why Barriers to Entry are Barriers to Understanding," NBER Working Papers 10577, National Bureau of Economic Research, Inc.
  5. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, volume 1, number 5474.
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