ECON 1010 Lecture Notes - George Stigler, Sunk Costs, Profit Maximization

• School: University of Manitoba
• Department: Economics
• Course: ECON 1010
• Professor: Sarrah Vakili

Document Summary

Chapter 20: barriers to entry protecting monopoly power in the long run. Barriers to entry are designed to block potential entrants from entering a market profitably. They seek to protect the power of existing firms and maintain supernormal profits / increase producer surplus. These barriers have the effect of making a market less contestable - they are also important because they determine the extent to which established firms can price above marginal and average cost in the long run. Another economist, george bain defined entry barriers in a slightly different way the extent to which established firms can elevate their selling prices above the minimal average costs of production without inducing potential entrants to enter an industry . This emphasises the asymmetry in costs that often exists between the incumbent firm (i. e. the business with market power already inside the market) and the potential entrant.