Barriers to New Competition

Abstract

Conditions of entry into markets where sellers are few are analyzed intensively by Professor J. S. Bain in his Barriers to New Competition.1 In the tightly written first chapter the theory of entry is developed far beyond what was previously in the literature. There emerges a series of hypotheses as to the conditions of entry, and the probable degree to which they serve as barriers to new competition. A bold attempt is then made to measure the height of these barriers in 20 manufacturing industries. Predictions stemming from these empirical findings are compared with observed performance of these industries. Finally, the conclusions with respect to the significance of types of entry barriers lead to a number of observations as to public policy. All of this comprehensive analysis is carried out explicitly within the framework of comparative statics. Specifically excluded from the circumstances considered as having a significant effect on entry, and through that on the maximum level of the equilibrium price, are secular or cyclical [or episodic?] movements of demand, capacity or costs. Nor, except for a few notable cases of product innovation, does Bain believe that new sellers are able to alter the condition of entry. Instead, It is definitely posited for purposes of the present study-on the basis of extensive empirical observation-that the condition of entry as defined and its ultimate determinants are usually stable and slowly changing through time (p. 18). Such stability is elsewhere said to exist persistently over a period of time. Repeatedly this or a similar phrase appears to emphasize that observation ex post can be tied conceptually to the ex ante long-term equilibrium. Such stable and slowly changing conditions of entry are held to determine the ceiling price for an industry or the amount by which its price can, persistently, exceed the level . hypothetically attributed to long-run equilibrium in pure competition (p. 6). The actual persistent level of price may fall short of this entry-inviting level because of the nature of interfirm rivalry. The latter opens up the whole of oligopoly theory, but the author moves into that area only to indicate how the alternative solutions to interfirm rivalry would affect the price expectations of a would-be entrant. Entry is marked off from other sources of capacity expansion by the require-