Structural characteristics(2) The 4 structural characteristics that are often thought to be entry barriers are 1. Economies of scale If economies of scale are extensive then in order to enter on a cost competitive basis, a new entrant requires significant market share This is likely to depress prices and make it more likely that entry is not profitable. Entering on a small scale will have a relatively small effect on price, but the entrant s average costs will then be relatively high, again contributing to negative postentry profits 2. Sunk expenditures of the entrant To the extent that the investments required for entry are sunk, entrants might be reluctant to enter if they anticipate that these expenditures wil not be recovered. Sunk investments mean that any remaining investment is not recoverable upon exit from the market Many sunk expenditures are fixed costs which also are responsible for economies of scaleStructural characteristics (2) • The 4 structural characteristics that are often thought to be entry barriers are: • 1. Economies of scale. • If economies of scale are extensive, then in order to enter on a cost competitive basis, a new entrant requires significant market share. This is likely to depress prices and make it more likely that entry is not profitable. Entering on a small scale will have a relatively small effect on price, but the entrant’s average costs will then be relatively high, again contributing to negative postentry profits. • 2. Sunk expenditures of the entrant. • To the extent that the investments required for entry are sunk, entrants might be reluctant to enter if they anticipate that these expenditures wil not be recovered. Sunk investments mean that any remaining investment is not recoverable upon exit from the market. Many sunk expenditures are fixed costs which also are responsible for economies of scale