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Barriers to entry : abolishing the barriers to understanding


  • Keppler, Jan Horst


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.

Suggested Citation

  • Keppler, Jan Horst, 2009. "Barriers to entry : abolishing the barriers to understanding," MPRA Paper 44242, University Library of Munich, Germany, revised 2009.
  • Handle: RePEc:pra:mprapa:44242

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    References listed on IDEAS

    1. Keppler, Jan Horst, 1998. "Externalities, Fixed Costs and Information," Kyklos, Wiley Blackwell, vol. 51(4), pages 547-563.
    2. Dixit, Avinash, 1980. "The Role of Investment in Entry-Deterrence," Economic Journal, Royal Economic Society, vol. 90(357), pages 95-106, March.
    3. repec:dau:papers:123456789/10986 is not listed on IDEAS
    4. 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 261-276, May.
    5. 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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    Cited by:

    1. Ricardo Paredes & Rómulo Chumacero & Juan Gallegos, 2012. "Competition Pressures and Academic Performance in a Generalized Vouchers Context," EcoMod2012 4184, EcoMod.
    2. Rómulo A. Chumacero & Juan Gallegos Mardones & Ricardo D. Paredes, 2016. "Competition Pressures and Academic Performance in Chile," Estudios de Economia, University of Chile, Department of Economics, vol. 43(2 Year 20), pages 217-232, December.

    More about this item


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

    JEL classification:

    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection


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