Diarmid Weir Says:

August 30, 2011 at 1:08 pm e

The comment referred to the argument. I don’t even know if the argument belongs to you.

So let us move on then.

Did you look up the non-government barriers to entry? Sunk costs, access to capital, access to natural resources, customer loyalty, network effects, economies of scale…?

No I didn’t. I was simply waiting for your preferred list.

Sunk costs become the original firms losses. They however can potentially, as previously indicated provide the starting point for new entrants to purchase heavily discounted capital, which lowers their fixed costs. The advantage in lower fixed costs of course means that the strategy of selling at a loss to force the new entrant out of business is no longer possible.

Access to capital, assuming that the capital costs [interest on a loan] are lower than the profit margin, will not be a problem. Add to that the tax deductibility of interest and depreciation, and this is less of a problem still.

Access to natural resources. Since in the original article you claimed that the firm lowered the selling price to a price that created losses, thereby forcing out the competitor, that the original competitor had access to raw materials. I can assume that any new entrant will also have access to raw materials. Therefore this is not an issue.

Customer loyalty. That prior to the higher cost producer being put out of business, we can again assume some % of market share at price X. The new entrant, with lower fixed costs, can sell at a lower price. The lower price may take some market share from the marginal purchasers of the “brand”. This will be based of course on the lower price and the dynamics of demand elasticity.

Network effects. This argument has no relevance to your original argument and therefore becomes something of a straw man. However let me accept the argument of network effects. In that case, no other competitor chooses to enter the field as they feel that the available market is too small, or even non-existent. So now we have a monopoly in the definition of a sole firm. We have both agreed that this definition is not an accurate definition. That the true definition revolves around the question or definition of a monopoly price. This argument has already been addressed and rebutted comprehensively here.

Economies of scale, provide the means to achieve the end of a lower selling price while maintaining, or increasing profitability. If the consumer receives lower prices as a result of these economies of scale, that is a positive. Again, this argument bears no relation to your original article, which is just plain wrong. There is always a limit to the size of a firm, which consist of the law of diminishing returns, and second, the requirement of a market of prices by which to calculate, should the firm grow so large as to become the market, without which it will create losses.

Are these irrelevant because they don’t exist or because some 16th century sage didn’t mention them?

I see that you are a subscriber to the fallacy of new knowledge is superior to old knowledge. That new knowledge always offers an advance in quality over the old. In the social sciences, this is [i] incorrect and [ii] rather dangerous to those that hold this belief.