Barriers to Entry and Global Competition
In the 1960s and through most of the 1970s, barriers or deterrents to market entry and expansion were normally assumed. The unspoken assumption was that resources moved slowly to discipline monopolists or oligopolists; that in markets of few sellers, either entry was difficult in itself (otherwise more firms would have entered) or neophytes shunned entry because they feared the retaliative powers of incumbents. High concentration was itself a red flag for suspicion and concern. If barriers were observably high, this was an aggravating factor. 1
In the 1980s, Chicago School advocates turned the tables. "Insignificant" concentration (for example, ten or more equal-sized firms) was regarded as a safe harbor. Ten players was too many players to allow for successful collusion, much less monopolization (and, it was said, collusion and merger to create a monopoly exhausted the concerns of antitrust). Even if concentration was high (for example, five or fewer players), 2 fewness might reflect efficiency and not power; if entry was easy or readily feasible, potential competition would assure that the incumbents behaved rivalrously. And entry was presumed easy unless government-erected barriers kept entrants out. 3
Professor Shepherd dealt with aspects of the entry problem in his essay on antitrust economics. In this part we include two additional pieces. The first, by Professor Schmalensee, focuses directly on the entry problem and concludes that conditions of entry are difficult to assess; in real markets, barriers do exist; some theorists and some courts have been too cavalier in discounting barriers or defining them away; and, at least in mergers that produce high concentration, defendants should bear heavier burdens to prove that entry is easy.
The concept of barriers to entry is directly related to the threat from potential competition. If barriers are low and potential competitors exist, price rises by incumbents will produce immediate entry or expansion by