Barriers to Market Entry and Exit

In: Business and Management

Submitted By caloolgeele
Words 5265
Pages 22
Kampala International University
Abdifatah Adan Egeh
Course work material
+256718275925
caloolgeele@hotmail.com

Introduction The analysis of barriers to entry and exit is fundamental to the assessment of market power and market efficiency. A firm or firms may exercise market power for a significant period of time only if barriers to new entry exist. Thus in determining whether or not a proposed merger is against the public interest, or whether a firm (or firms) is abusing monopoly or market power in antitrust cases, analysis of entry conditions is of primary importance. One might therefore expect to see rather extensive and sophisticated analyses of entry conditions, or barriers to entry, in monopoly and merger cases that come before competition authorities in the United States, United Kingdom, or member states of the European Union (EU). One might also expect that competition authorities would have placed a great deal of emphasis and effort on achieving a coherent and consistent framework for the analysis of entry barriers in a manner that makes use of the latest thinking on the subject by industrial organization economists. However, until very recently no competition authority that we are aware of has attempted to formulate a coherent and detailed framework for the analysis of barriers to entry, despite the significant degree of effort that has been put into clarifying the related problems of market definition and the measurement of monopoly or market power. While clear and fairly precise statements and indeed, guidelines or procedures on these issues have come from the courts or government authorities charged with the implementation of competition policy, the approach to dealing with questions of entry has tended to remain vague and ad hoc. The interest in entrepreneurship and processes of new firm formation has a long tradition in economic…...

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