Entry and Exit

Question 1

What are the four elements to barriers of entry?

Answer 1

1) Economies of Scale;
2) Absolute Cost Advantage;
3) Product-Differentiation Advantages;
4) Capital Requirement.

Question 2

why might a new entrant be deterred?

Answer 2

high barriers to entry e.g sunk costs in buying airpanes for airlines

Question 2

stiglitz diagram about sunk costs and encumbants

Answer 2

Bertrand if IN
Monopoly-e for other firm if OUT

Question 3

stiglitz diagram if firms recieve 0/ upon exit

Answer 3

Encumbant enters:
if IN -IN - Bertrand Price Competetion
if IN-OUT - monopoly earning -e for entranta and e-0/ for incumbent (less than 0)

Question 4

what are contestable markets

Answer 4

a market with no sunk costs of entry barriers where the incumbent is making non negative profits and no entrant can undercut them

homogenous product
same cost structure

Question 5

what is an industry configuration

Answer 5

An industry configuration is a pair (qI, pI) of price charged and quantity produced by the I.

Question 6

An industry configuration is feasible if…..

Answer 6

market clears (qI = D(pI)) and if I makes nonnegative profits (pIqI  C(qI)).

Question 7

An industry configuration is sustainable if…

Answer 7

no entrant can make a profit by undercutting the I’ s price. That is, there is no pe  pI and qe  D(pe) such that peqe > C(qe))

Question 8

what is

Blockaded Entry
Deterred Entry
Accommodated Entry

Answer 8

1. Incumbents compete as if there the were no entry and no entry takes place
   2.incumbents modify their behaviour to successfully prevent entry
   3.The incumbents find it individually more profitable to let the entrants enter than to erect costly barrier to entry