Economic and Business Infrastructure Barrier for Tim Horton in India
http://www.mcafee.cc/Papers/PDF/Barriers2Entry.pdf
Economic and Antitrust Barriers to Entry
R. Preston McAfee, Hugo M. Mialon, and Michael A. Williams1
December 1, 2003
Abstract
We review the extensive literature on barriers to entry in law and economics; we introduce four concepts, namely economic, antitrust, primary, and ancillary barriers to entry; we employ these concepts to classify a set of well-known structural characteristics of markets and competitive tactics by incumbents; and we apply the resulting insights to evaluate the verdicts that were reached in a set of landmark antitrust court cases in the US.
Bain (1956) defined an entry barrier as anything that allows incumbent firms to earn above-normal profits without the threat of entry. To defend his contention that large scale economies are an entry barrier, Bain argued that if incumbents act in concert and potential entrants expect incumbents to maintain their pre-entry output levels after entry has occurred, the necessity for firms to be large relative to the market in order to attain productive efficiency allows incumbents to earn above-normal profits without the threat of entry. However, incumbents may find that their interests are best served by reducing their output levels once large scale entry has occurred, so that Bain 's assumption that potential entrants expect incumbents to maintain their pre-entry output levels may not be realistic. Moreover, Stigler (1968) rejected the basic notion that scale economies can create an entry barrier. He defined entry barriers as costs that must be borne by a firm that seeks to enter an industry but is not borne by firms already in the industry. In any given industry, entrants and incumbents alike enjoy the same scale economies as they expand their output. Therefore, according to Stigler 's definition, scale economies are not an entry barrier. With respect to scale economies, and other market characteristics, the definitions of Bain
Economic and Antitrust Barriers to Entry
R. Preston McAfee, Hugo M. Mialon, and Michael A. Williams1
December 1, 2003
Abstract
We review the extensive literature on barriers to entry in law and economics; we introduce four concepts, namely economic, antitrust, primary, and ancillary barriers to entry; we employ these concepts to classify a set of well-known structural characteristics of markets and competitive tactics by incumbents; and we apply the resulting insights to evaluate the verdicts that were reached in a set of landmark antitrust court cases in the US.
Bain (1956) defined an entry barrier as anything that allows incumbent firms to earn above-normal profits without the threat of entry. To defend his contention that large scale economies are an entry barrier, Bain argued that if incumbents act in concert and potential entrants expect incumbents to maintain their pre-entry output levels after entry has occurred, the necessity for firms to be large relative to the market in order to attain productive efficiency allows incumbents to earn above-normal profits without the threat of entry. However, incumbents may find that their interests are best served by reducing their output levels once large scale entry has occurred, so that Bain 's assumption that potential entrants expect incumbents to maintain their pre-entry output levels may not be realistic. Moreover, Stigler (1968) rejected the basic notion that scale economies can create an entry barrier. He defined entry barriers as costs that must be borne by a firm that seeks to enter an industry but is not borne by firms already in the industry. In any given industry, entrants and incumbents alike enjoy the same scale economies as they expand their output. Therefore, according to Stigler 's definition, scale economies are not an entry barrier. With respect to scale economies, and other market characteristics, the definitions of Bain
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