Question

Define barriers to entry, as discussed by prof. Joe Bain in 1956.

Answer 1

Solution-

Define barriers to entry, as discussed by prof. Joe Bain in 1956.

Bain (1956) defined a barrier to entry as anything that allows incumbent firms to earn above-normal profits without the threat of entry.

He believed that economies of scale and capital requirements meet his definition because they seem to be positively correlated with high profits.

Bain argued that if incumbents act in concert and potential entrants expect incumbents to maintain their pre-entry output levels after entry has occurred, the necessity for firms to be large relative to the market in order to attain productive efficiency allows incumbents to earn above-normal profits without the threat of entry.