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Barriers To Entry

Author

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  • Dennis W. Carlton

Abstract

This paper analyzes the concept of barriers to entry. It explains that the concept is a static one and explores the inadequacy of the concept in a world with sunk costs, adjustment costs and uncertainty. The static concept addresses the question of whether profits are excessive. The more interesting and relevant question is how fast entry or exit will erode profits or losses and how do the bounds that entry and exit place on price vary with uncertainty and sunk cost. Intuition based on the static concept of barrier to entry can be misleading in many industries.

Suggested Citation

  • Dennis W. Carlton, 2005. "Barriers To Entry," NBER Working Papers 11645, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11645 Note: IO
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    File URL: http://www.nber.org/papers/w11645.pdf
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    References listed on IDEAS

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    1. Weitzman, Martin L, 1983. "Contestable Markets: An Uprising in the Theory of Industry Structure: Comment," American Economic Review, American Economic Association, vol. 73(3), pages 486-487, June.
    2. Robert S. Pindyck, 2005. "Sunk Costs and Real Options in Antitrust," NBER Working Papers 11430, National Bureau of Economic Research, Inc.
    3. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    4. Ariel Pakes & Michael Ostrovsky & Steven Berry, 2007. "Simple estimators for the parameters of discrete dynamic games (with entry/exit examples)," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 373-399, June.
    5. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, June.
    6. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter.
    7. repec:reg:rpubli:237 is not listed on IDEAS
    8. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October.
    9. 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.
    10. Rchard Schmalensee, 2004. "Sunk Costs and Antitrust Barriers to Entry," American Economic Review, American Economic Association, vol. 94(2), pages 471-475, May.
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    Citations

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    Cited by:

    1. Yevgeniya Shevtsova, 2012. "International Trade and Productivity: Does Destination Matter?," Discussion Papers 12/18, Department of Economics, University of York.
    2. Cher LI & Richard HARRIS, "undated". "Learning-by-Exporting? Firm-Level Evidence for UK Manufacturing and Services Sectors," EcoMod2008 23800080, EcoMod.
    3. Senyuta, Olena & Žigić, Krešimir, 2016. "Managing spillovers: An endogenous sunk cost approach," Information Economics and Policy, Elsevier, vol. 35(C), pages 45-64.

    More about this item

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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