DOCSLIB.ORG

Bounded Rationality, Market Discipline, and Legal Policy

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Bounded Rationality, Market Discipline, and Legal Policy Michigan Law Review Volume 101 Issue 2 2002 The Fable of Entry: Bounded Rationality, Market Discipline, and Legal Policy Avishalom Tor Boston University School of Law Follow this and additional works at: https://repository.law.umich.edu/mlr Part of the Antitrust and Trade Regulation Commons, Law and Economics Commons, and the Supreme Court of the United States Commons Recommended Citation Avishalom Tor, The Fable of Entry: Bounded Rationality, Market Discipline, and Legal Policy, 101 MICH. L. REV. 482 (2002). Available at: https://repository.law.umich.edu/mlr/vol101/iss2/4 This Article is brought to you for free and open access by the Michigan Law Review at University of Michigan Law School Scholarship Repository. It has been accepted for inclusion in Michigan Law Review by an authorized editor of University of Michigan Law School Scholarship Repository. For more information, please contact [email protected]. THE FABLE OF ENTRY: BOUNDED RATIONALITY, MARKET DISCIPLINE, AND LEGAL POLICY Avishalom Tor* TABLE OF CONTENTS INTRODUCTION ........................................................................................ 484 I. THE PUZZLES OF ENTRY ................................... ......................... 488 A. The Assumption of Entrant Rationality: Empirical Findings vs. Economic Theory ............................................ 488 1. The First Puzzle: The Prevalence ofNeg ative Net Present Value Entry ....................................................... 490 2. The Second Puzzle: Entrants' Insensitivity to Predictors of Future Profitability ................................... 492 .3. The Third Puzzle: An Inferior Average Performance of Startup Entrants ................................... 494 B. Can the Rationality Assumption be Salvaged? ................... 497 1. Maintaining the Rationality Assumption: Windows of Opportunity, Limited Information, and the Fruits of Learning ...................................................................... 497 2. Modifyingthe Rationality Assumption: MaximizingEx pected Utility with Negative Net Present Values ................................................................. 501 II. A BEHAVIORAL ANALYSIS OF ENTRY DECISIONMAKING ..... 503 A. Solving the First Puzzle: The Processes of Entrants' Overconfidence ...................................................................... 504 1. Optimistic Bias ................................................................ 505 2. The Desirability Bias and Related Phenomena ............ 508 3. The Illusion of Control ................................................... 512 B. Solving the Second Puzzle: The Side Effects of Entrants' Overoptimism ....................................................... 514 "' Lecturer, Boston University School of Law. Fellow, Olin Center for Law, Economics, and Business, Harvard Law School. Fellow, Program on Negotiation, Harvard Law School. LL.B., B.A. 1996, Hebrew University of Jerusalem; LL.M. 1998, S.J.D. candidate, Harvard. - Ed. This research was supported by fellowships from the Olin Center for Law, Economics, and Business, and the Program on Negotiation, Harvard Law School. I thank Jennifer Arlen, Max Bazerman, Assaf Hamdani, Louis Kaplow, Sarah Levine, Paul Slovic, and the editors for valuable comments. Jamie Byrnes provided helpful research assistance. Special thanks to Christine Jolls for providing extensive and most valuable comments on this Article. 482 November 2002] Th e Fable of Entry 483 1. Optimistic Bias ................................................................ 514 2. Desirability Biases ........................................................... 515 3. The Illusion of Control ................................................... 517 4. Underestimating the Importance ofIndirect Effects in Competitive Settings .................................................... 517 C. Solving the Third Puzzle: All Entry is Not the Same ........ 520 1. The Intensity of Preferences ........................................... 520 2. Judgmental Ambiguity.................................. .................. 524 III. THE CONSEQUENCES OF ENTRANT-BOUNDED RATIONALITY ............................................................................... 531 A. How the Bounded Rationalityof Entrants Transfo rms the Competitive Landscape .................................................. 531 B. The Limited Efficacy of Financier Gate Keeping .............. 534 C. The Consequences of Boundedly Rational Innovative Entry ..................... .................................................................. 537 1. Bounded Rationalityand Innovative Entry. ................. 537 2. The Consequences of Innovative Entry .............. .......... 540 IV. EVALUATING ENTRY AFRESH ................................................... 543 A. The Social Costs and Benefits ofBound edly Rational Entry ....................................................................................... 543 B. Regulating Negative Expected Value Entry?............ .......... 545 C. Antitrust Law and Boundedly Rational Entry................... 548 1. General Conclusions: Entry and Market Power in Antitrust. ........................................................................... 548 2. Predatory Pricing: Entryand Recoupment..... ............. 552 3. Horizontal Mergers: Entry in the Merger ......... ... .................................. .............. 555 Guidelines . ...... V. BOUNDED RATIONALITY IN MARKETS: LESSONS FOR LEGAL POLICY .............................................................................. 560 A. The Prevalence of Bounded Rationality in Legally Relevant Market Settings .................................................. .... 560 B. The Limits ofAr guments.Relying on Markets to Eliminate Bounded Rationality ............................................ 561 C. Some Broader Lessons fo r Legal Analyses of Market Behavior ................................................................................. 563 1. When Should Legal Analyses ofMarket Behavior Take Bounded Rationality into Account? .................... 563 2. How Should Legal Analyses of Market Behavior Take Bounded Rationality into Account? .................... 565 CONCLUSION ............................................................................................ 567 484 Michigan Law Review [Vol. 101:482 INTRODUCTION Legal scholars have recently advanced a behavioral approach to the law and economics school of thought in an attempt to improve its external validity and predictive power.1 The hallmark of this new ap­ proach is the replacement of the perfectly rational actor with a "boundedly rational" decisionmaker who, apart from being affected by emotion and motivation, has only limited cognitive resources.2 To function effectivelyin a complex :world,boundedly rational individuals must rely on cognitive heuristics - simplifying mental shortcuts - that inevitably lead people to make some systematic decision errors; as a result, their behavior necessarily deviates from that predicted by ra­ tional actor models.3 1. Christine Jolls et al., A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471 (1998) (offeringa broad vision of how law and economics could be improved by increasing its attention to insights about actual human behavior); Russell B. Korobkin & Thomas S. Ulen, Law and Behavioral Science: Removing the Rationality Assumption from Law and Economics, 88 CAL. L. REV. 1051 (2000) (examining the role of the rational actor in law and economics and suggesting replacing it with a behaviorally informed actor). 2. The term "bounded rationality" is used here broadly, encompassing the major find­ ings of behavioral decision research over the last thirtyyears on the deviations of actual hu­ man behavior from rational models due to the limitations of human information processing abilities and the effects of motivation and emotion on human cognition. For instructive re­ views of this enormous literature, see, for example, Colin Camerer, Individual Decision Making, in 1 THE HANDBOOK OF EXPERIMENTAL ECONOMICS 587 (John H. Kagel & Alvin E. Roth eds., 1995); Robyn M. Dawes, Behavioral Decision Making and Judgment, in THE HANDBOOK OF SOCIAL PSYCHOLOGY 497 (Daniel T. Gilbert et al. eds., 4th ed. 1998). The concept of bounded rationality was originally developed by Herbert A. Simon. See Herbert A. Simon, A Behavioral Model of Rational Choice, 69 Q.J. ECON. 99 (1956); Herbert A. Simon, Rational Choice and the Structure of the Environment, 63 PSYCHOL. REV. 129 (1958); see also HERBERT A. SIMON, REASON IN HUMAN AFFAIRS 17-23 (1983). In Simon's termi­ nology, however, bounded rationality denoted only the cognitive limitations of the human mind. Contrast Jolls et al.'s depiction of bounded rationality as only one of three "bounds" differentiatingactual human behavior from the rational actor (the other two being bounded self-interest and bounded willpower, but without reference to the broader effectsof motiva­ tion and emotion on cognition). Jolls et al., supra note 1, at 1476-79. 3. See, e.g., Amos Tversky & Daniel Kahneman, Judgment Under Uncertainty: Heuristics and Biases, 185 SCIENCE 1124, 1124 (1974), reprinted in JUDGMENT UNDER UNCERTAINTY: HEURISTICS AND BIASES 3 (Daniel Kahneman et al.eds. , 1982) (stating, in an early formula­ tion of the authors' highly influential "heuristics and biases" research paradigm, that: "[P]eople rely on a limited number of heuristic principles which reduce the complex task of assessing probabilities and predicting values to simpler judgmental
Load more

Recommended publications
  • Navigating Social and Institutional Barriers to Markets: How Social Entrepreneurs Identify and Evaluate Opportunities Jeffrey Robinson
    7 Navigating Social and Institutional Barriers to Markets: How Social Entrepreneurs Identify and Evaluate Opportunities Jeffrey Robinson Introduction Entrepreneurship research can be broadly placed into three categories: that which examines the people (entrepreneurs); that which examines the process and that which examines the entrepreneurial or business opportunities. This chapter specifically looks at social entrepreneurial opportunities and the process of identifying and evaluating these types of opportunities. I address three important questions: • What makes social entrepreneurial opportunities different from other types of opportunities? • What makes social entrepreneurship special? • How do social entrepreneurs find social entrepreneurial opportunities? The phenomenon of social entrepreneurship For the purposes of this chapter, I define social entrepreneurship (SE) as a process (Shane and Venkataraman, 2000) that includes: the identifica- tion of a specific social problem and a specific solution (or set of solu- tions) to address it; the evaluation of the social impact, the business model and the sustainability of the venture; and the creation of a social mission-oriented for-profit or a business-oriented nonprofit entity that pursues the double (or triple) bottom line. This approach to defining SE allows for future research directions and for clearer distinctions from ‘traditional’ entrepreneurship. 95 96 Social Entrepreneurship Recently, there has been an explosion of interest in the phenome- non of SE. It is an attractive area for practitioners, policy makers, the media and business schools because it addresses several issues in society (Dees, 1998; Thompson, 2002; Alvord, Brown and Letts, 2004; Brainard and Siplon, 2004). SE is a uniting concept that demonstrates the usefulness of business principles in achieving social goals.
    [Show full text]
  • The United States Has a Market Concentration Problem Reviewing Concentration Estimates in Antitrust Markets, 2000-Present
    THE UNITED STATES HAS A MARKET CONCENTRATION PROBLEM REVIEWING CONCENTRATION ESTIMATES IN ANTITRUST MARKETS, 2000-PRESENT ISSUE BRIEF BY ADIL ABDELA AND MARSHALL STEINBAUM1 | SEPTEMBER 2018 Since the 1970s, America’s antitrust policy regime has been weakening and market power has been on the rise. High market concentration—in which few firms compete in a given market—is one indicator of market power. From 1985 to 2017, the number of mergers completed annually rose from 2,308 to 15,361 (IMAA 2017). Recently, policymakers, academics, and journalists have questioned whether the ongoing merger wave, and lax antitrust enforcement more generally, is indeed contributing to rising concentration, and in turn, whether concentration really portends a market power crisis in the economy. In this issue brief, we review the estimates of market concentration that have been conducted in a number of industries since 2000 as part of merger retrospectives and other empirical investigations. The result of that survey is clear: market concentration in the U.S. economy is high, according to the thresholds adopted by the antitrust agencies themselves in the Horizontal Merger Guidelines. By way of background, recent studies of industry concentration conclude that it is both high and rising over time. For example, Grullon, Larkin, and Michaely conclude that concentration increased in 75% of industries from 1997 to 2012. In response to these and similar studies, the antitrust enforcement agencies recently declared that their findings are not relevant to the question of whether market concentration has increased because they study industrial sectors, not antitrust markets. Specifically, they wrote, “The U.S.
    [Show full text]
  • When Are Sunk Costs Barriers to Entry? Entry Barriers in Economic and Antitrust Analysis†
    WHEN ARE SUNK COSTS BARRIERS TO ENTRY? ENTRY BARRIERS IN ECONOMIC AND ANTITRUST ANALYSIS† What Is a Barrier to Entry? By R. PRESTON MCAFEE,HUGO M. MIALON, AND MICHAEL A. WILLIAMS* In the Papers and Proceedings of the Forty- ing the concept of barriers to entry. We begin by eighth Meeting of the American Economic As- contrasting the definitions of an entry barrier sociation, Donald H. Wallace (1936 p. 83) proposed in the economics literature. We then proposed a research program that proved vision- introduce a classification system to clear up the ary: “The nature and extent of barriers to free existing confusion, and we employ it to assess entry needs thorough study.” Fifteen years later, the nature of the barriers posed by scale econ- Joe S. Bain published a book that was the first omies and sunk costs. thorough study of entry barriers. In this book, Bain (1956) defined an entry I. History of the Concept barrier as anything that allows incumbents to earn above-normal profits without inducing en- In chronological order, the seven principal try. He believed that economies of scale and definitions of an entry barrier proposed in the capital requirements meet his definition because economics literature are as follows. they seem to be positively correlated with high profits. George J. Stigler (1968) later defined an Definition 1 (Bain, 1956 p. 3): A barrier to entry barrier as a cost advantage of incumbents entry is an advantage of established sellers in an over entrants. With equal access to technology, industry over potential entrant sellers, which is scale economies are not an entry barrier accord- reflected in the extent to which established sell- ing to this definition, and neither are capital ers can persistently raise their prices above requirements, unless incumbents never paid competitive levels without attracting new firms them.
    [Show full text]
  • A Critique of the Herfindahl-Hirschman Index's Use
    Pace Law Review Volume 34 Issue 2 Spring 2014 Article 8 April 2014 When Bigger Is Better: A Critique of the Herfindahl-Hirschman Index’s Use to Evaluate Mergers in Network Industries Toby Roberts Follow this and additional works at: https://digitalcommons.pace.edu/plr Part of the Antitrust and Trade Regulation Commons, and the Business Organizations Law Commons Recommended Citation Toby Roberts, When Bigger Is Better: A Critique of the Herfindahl-Hirschman Index’s Use to Evaluate Mergers in Network Industries, 34 Pace L. Rev. 894 (2014) Available at: https://digitalcommons.pace.edu/plr/vol34/iss2/8 This Article is brought to you for free and open access by the School of Law at DigitalCommons@Pace. It has been accepted for inclusion in Pace Law Review by an authorized administrator of DigitalCommons@Pace. For more information, please contact [email protected]. When Bigger Is Better: A Critique of the Herfindahl-Hirschman Index’s Use to Evaluate Mergers in Network Industries Toby Roberts* I. Introduction The Herfindahl-Hirschman Index (“HHI”) operates under a very simple premise: industry behavior strongly correlates with industry structure; the larger a firm is within its industry, the more likely it is to engage in supracompetitive pricing or other anticompetitive conduct.1 For more than 30 years, antitrust regulators have used the index to gauge whether prospective mergers would produce a firm of such magnitude that it would adversely impact societal welfare. When an HHI analysis of an impending merger suggests that a potentially harmful increase in concentration will result, the companies involved must demonstrate that the merger has other characteristics that mitigate its impact on prices in order to gain regulatory approval.2 * Staff attorney at the California Court of Appeal and former law clerk at the United States District Court for the Central District of California and the United States Court of Appeals for the Ninth Circuit.
    [Show full text]
  • Barriers to Entry and Productivity Growth
    ESSAY 3 2020 BARRIERS TO ENTRY AND PRODUCTIVITY GROWTH Vincent Geloso ACHIEVING THE FOUR-DAY WORK WEEK Essays on Improving Productivity Growth in Canada CHAPTER 3 Barriers to Entry and Productivity Growth By Vincent Geloso If one seeks to improve living standards, there is no way around it: one must seek policies that improve productivity. Faster productivity growth means faster economic growth because productivity growth liberates resources, time, and labour for other purposes. The unparalleled increase in living standards since the start of the industrial revolution came from continuous efforts to more productively employ and combine avail- able resources. There is, however, a paradox. While no one disputes that increasing productivity is the way to improve living standards, no one is able to predict where (i.e., in which economic sector) productivity will rise. Productivity growth often comes from unexpected sources as a result of entrepreneurs tinkering with existing ideas or exploring new ideas about how to produce. Knowing which entrepreneur will succeed is not easy (likely impossible) to predict beforehand. Why free entry matters As such, one of the key conditions for insuring productivity growth is freedom for entrepreneurs to try new and different methods of production or delivery. If there are no legal barriers to entry, economic growth will be faster for two reasons. The first is that entrepreneurship will be greater (Bennett, 2020; Hall, Lacombe, and Pokharel, 2016). This alone is import- ant for economic growth as some studies conclude that one-third to one- half of the cross-national differences in growth rates is explained by differ- ences in entrepreneurship rates (Sobel, Clark, and Lee, 2007; Carree and Thurik, 2010).
    [Show full text]
  • U.S. Business and Global Barriers to Entry Caitlin Long
    Eastern Michigan University DigitalCommons@EMU Senior Honors Theses Honors College 2009 U.S. Business and Global Barriers to Entry Caitlin Long Follow this and additional works at: http://commons.emich.edu/honors Part of the International Business Commons Recommended Citation Long, Caitlin, "U.S. Business and Global Barriers to Entry" (2009). Senior Honors Theses. 167. http://commons.emich.edu/honors/167 This Open Access Senior Honors Thesis is brought to you for free and open access by the Honors College at DigitalCommons@EMU. It has been accepted for inclusion in Senior Honors Theses by an authorized administrator of DigitalCommons@EMU. For more information, please contact lib- [email protected]. U.S. Business and Global Barriers to Entry Abstract An exploratory view of barriers to entry in countries of significance to U.S. companies, this thesis provides a comprehensive overview of prevalent business strategies of U.S. trading partners as well as a forecast of their international business policies. Diverse macro-environmental variables, such as economy, culture, and regulations result in varying barriers to entry for U.S. based firms to conduct business in U.S trading partners’ countries. This thesis will determine how these macro-environmental factors foster or stunt growth and strategies governments employ to attract businesses. Degree Type Open Access Senior Honors Thesis Department Marketing First Advisor Harash Sachdev Keywords International trade, Foreign trade regulation, Investments, Foreign China, Investments, Foreign India, Investments, Foreign Hungary, United States Foreign economic relations Subject Categories International Business This open access senior honors thesis is available at DigitalCommons@EMU: http://commons.emich.edu/honors/167 U.S.
    [Show full text]
  • United States Competition Policy in Crisis: 1890-1955 Herbert Hovenkamp
    University of Minnesota Law School Scholarship Repository Minnesota Law Review 2009 United States Competition Policy in Crisis: 1890-1955 Herbert Hovenkamp Follow this and additional works at: https://scholarship.law.umn.edu/mlr Part of the Law Commons Recommended Citation Hovenkamp, Herbert, "United States Competition Policy in Crisis: 1890-1955" (2009). Minnesota Law Review. 483. https://scholarship.law.umn.edu/mlr/483 This Article is brought to you for free and open access by the University of Minnesota Law School. It has been accepted for inclusion in Minnesota Law Review collection by an authorized administrator of the Scholarship Repository. For more information, please contact [email protected]. Article United States Competition Policy in Crisis: 1890-1955 Herbert Hovenkampt INTRODUCTION: HISTORICAL EXPLANATION AND THE MARGINALIST REVOLUTION The history of legal policy toward the economy in the United States has emphasized interest group clashes that led to regula- tory legislation.' This is also true of the history of competition policy. 2 Many historians see regulatory history as little more than a political process in which well-organized, dominant interest groups obtain political advantage and protect their particular in- dustry from competition, typically at the expense of consumers.3 t Ben V. & Dorothy Willie Professor, University of Iowa College of Law. Thanks to Christina Bohannan for commenting on a draft. Copyright 0 2009 by Herbert Hovenkamp. 1. See, e.g., WILLIAM J. NOVAK, THE PEOPLE'S WELFARE: LAW AND REGULA- TION IN NINETEENTH-CENTURY AMERICA 83-84 (1996); THE REGULATED ECONO- MY: A HISTORICAL APPROACH TO POLITICAL ECONOMY 12-22 (Claudia Goldin & Gary D.
    [Show full text]
  • Benefits of Competition and Indicators of Market Power
    COUNCIL OF ECONOMIC ADVISERS ISSUE BRIEF APRIL 2016 BENEFITS OF COMPETITION AND INDICATORS OF MARKET POWER Introduction sanction anticompetitive behavior, and help define the contours of antitrust law through court decisions. These This issue brief describes the ways in which competition measures not only have immediate effects on the between firms can benefit consumers, workers, behavior that is challenged but also may help deter entrepreneurs, small businesses and the economy more anticompetitive abuses in the future. generally, and also describes how these benefits can be lost when competition is impaired by firms’ actions or Promoting competition extends beyond enforcement of government policies. Several indicators suggest that antitrust laws, it is also about a range of other pro- competition may be decreasing in many economic competitive policies. Several U.S. departments and sectors, including the decades-long decline in new agencies are actively using their authority to advance business formation and increases in industry-specific pro-competition and pro-consumer policies and measures of concentration. Recent data also show that regulations. For example, in several cases the Federal returns may have risen for the most profitable firms. To Aviation Administration (FAA) of the Department of the extent that profit rates exceed firms’ cost of capital— Transportation (DOT) has sought to provide competitive which may be suggested by the rising spread on the airline carriers with greater access to take-off and return to invested capital relative to Treasury bonds— landing slots at capacity constrained “slot-controlled” they may reflect economic rents, which are returns to airports. The Federal Communications Commission the factors of production in excess of what would be (FCC), in its most recent design of a spectrum auction, necessary to keep them in operation.
    [Show full text]
  • Barriers to Entry in Electricity Generation
    Barriers to entry in electricity generation A report outline for the AEMC Dr Tom Hird Mr Paul Reynolds Mr Daniel Young Ms Johanna Hansson Dr Yuliya Moore June 2012 Table of Contents Executive Summary 4 Definition of barriers to entry 4 Conditions giving rise to barriers to entry 5 Testing for the significance of barriers to entry 5 1. Entry in general and specifically in generation 8 1.1. Entry strategies (and entry deterrence strategies) in general 8 1.2. Entry into electricity generation 11 2. Conceptual framework for analysing barriers to entry 13 2.1. Applying the framework to the NEM 16 2.2. Defining long run marginal cost 18 2.3. Full definition of conditions giving rise to SMP 19 3. Potential barriers to entry in the NEM 20 3.1. Ineffective competition among incumbent firms 20 3.2. What does not constitute a barrier to entry 21 3.3. Barriers to entry arising from inefficient imposts on new entrants 22 3.4. Other structural barriers to entry 22 3.5. Strategic barriers to entry 23 4. Assessing effectiveness of competition among incumbents 24 5. Evidence on barriers to entry in the NEM 36 5.1. The significance of inefficient imposts on new entrants 36 5.2. Other structural barriers to entry 42 5.3. Strategic barriers to entry 43 5.4. Evidence from market outcomes 53 5.5. Overall conclusion 64 Appendix A. Incentives to withhold supply 67 A.1. Commodity market cost curves 67 A.2. Incentives to withhold supply and the concept of the ‘critical slope’ 69 A.3.
    [Show full text]
  • How Competitive Is Product Market Regulation in India? an International and Cross-State Comparison
    ISSN 1995-2848 OECD Journal: Economic Studies Volume 2009 © OECD 2009 How Competitive is Product Market Regulation in India? An International and Cross-state Comparison by Paul Conway and Richard Herd Introduction. 2 The overall stance of product market regulation in India . 4 At the national level . 4 At the state level . 4 Regulation and economic performance across Indian states . 6 Potential transmission channels . 8 The low-level indicators and areas in need of reform . 10 State control . 10 Barriers to entrepreneurship. 14 Barriers to international trade and investment . 18 Notes. 20 Bibliography. 21 Annex A1. Data Annex. 24 Paul Conway is an independent economist and consultant to the OECD ([email protected]). Richard Herd is Head of the India Desk at the OECD ([email protected]). We would like to thank Sean Dougherty, Vincent Koen, Willi Leibfritz, Giuseppe Nicoletti, Stefano Scarpetta and Jean-Luc Schneider for useful comments on an earlier draft of this paper. Thanks also go to Thomas Chalaux for statistical assistance and Nadine Dufour for secretarial support. We are also most grateful to Dr. Simrit Kaur who was the principal consultant based in Delhi working on the PMR indicators for India. 1 HOW COMPETITIVE IS PRODUCT MARKET REGULATION IN INDIA? AN INTERNATIONAL AND CROSS-STATE COMPARISON Introduction Since the mid-1980s, successive waves of reform have progressively moved India away from its former dirigiste economic model towards a market-based system. The reform of regulations that shape the business environment in markets for goods and services – henceforth referred to as product market regulation – has been an integral part of this transformation.
    [Show full text]
  • Barriers to Entry
    View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Research Papers in Economics Research Report H200301 Barriers to Entry Differences in barriers to entry for SMEs and large enterprises Jasper Blees Ron Kemp Jeroen Maas Marco Mosselman Zoetermeer, May 2003 SCALES SCientific AnaLysis of Entrepreneurship and SMEs ISBN: 90-371-0893-8 Order number: H200301 Price: € 50.- This report is published under the SCALES-initiative (Scientific AnaLyses of Entrepreneurship SMEs), as part of the SMEs and Entrepreneurship' programme financed by the Netherlands' Ministry of Economic Affairs. Most recent EIM reports and much more on SMEs and Entrepreneurship can be found at: www.eim.nl/smes-and-entrepreneurship. The responsibility for the contents of this report lies with EIM. Quoting numbers or text in papers, essays and books is permitted only when the source is clearly mentioned. No part of this publication may be copied and/or published in any form or by any means, or stored in a retrieval system, without the prior written permission of EIM. EIM does not accept responsibility for printing errors and/or other imperfections. 2 Contents Summary 5 1 Introduction 7 2 Literature on barriers to entry 9 2.1 Industrial organisation on barriers to entry 9 2.2 Strategic-management literature 17 2.3 Conclusion 24 3 Barriers to entry: descriptions 27 3.1 Absolute cost advantages 28 3.2 Access to distribution channels 31 3.3 Advertising 34 3.4 Asset specificity 38 3.5 Availability of skilled labour 40 3.6 Brand name 42 3.7
    [Show full text]
  • Retail Featuring As an Entry Or Mobility Barrier in Manufacturing
    EA & EG WORKING PAPERS RETAIL FEATURING AS AN ENTRY OR MOBILITY BARRIER IN MANUFACTURING Philip B. Nelson and John C. Hilke WORKING PAPER NO. 144 September 1986 FfC Bureau of Ecooomics working papers are preliminary materials circulated to stimulate discussion and critical comment All data cootained in them are in the public domain. This includes information obtained by the Commissioo which has become part of public record. The analyses and conclusions set forth are those of the authors and do not necessarily reflect the views of other members of the Bureau of Economics, other Commission staff, or the Commission itself. Upon request, single copies of the paper will be provided. References in publications to FiC Bureau of Economics working papers by FTC economists (other than acknowledgement by a writer that he has access to such unpublished materials) should be cleared with the author to protect the tentative character of these papers. BUREAU OF ECONOMICS FEDERAL TRADE COMMISSION WASHINGTON, DC 20580 RETAIL FEATURING AS AN ENTRY OR MOBILITY BARRIER IN MANUFACTURING by Philip B. Nelson and John C. Hilkel I. INTRODUCTION Anyone who shops for groceries is aware that retailers from time to time offer reduced prices on particular items. Many of these price reductions involve featuring. Featuring is the practice of setting lower than normal margins on one or more brands in anticipation that customers drawn to the store to buy the featured items will also buy non featured items, at normal or higher than normal markups.2 Loss-leader sales, sales at prices less than cost, are the most extreme form of featuring.
    [Show full text]