Sources of market power(2) Entry is impeded when entrants anticipate that their profits postentry will be negative Entry barriers are of interest from 2 perspectives: (1) corporate strategy and ( 2) public policy From the perspective of firms, entry barriers are required to protect an incumbent s market power. However, incumbents will be interested in protecting not only their market power, but also their monopoly profits. A key objective of corporate strategy will be profitable entry deterrence Profitable entry deterrence occurs when incumbent firms are able to earn monopoly profits without attracting entry Profitable entry deterrence depends on the interaction of structural entry barriers and the behavior of incumbents postentry Profitable entry deterrence is not necessarily exogenous-incumbent firms can make strategic investments and engage in other behavior that magnifies the effect of, or creates structural entry barriers and shelters both their market power and monopoly profits From a public policy perspective the existence of entry barriers is also very important. If entry is timely, likely, and sufficient then attempts by firms to exercise or create market power will ultimately be unsuccessful New entry will provide consumers with sufficient substitution alternatives that efforts to raise price above competitive levels will not be sustainableSources of market power (2) • Entry is impeded when entrants anticipate that their profits postentry will be negative. • Entry barriers are of interest from 2 perspectives: (1) corporate strategy and (2) public policy. • From the perspective of firms, entry barriers are required to protect an incumbent’s market power. However, incumbents will be interested in protecting not only their market power, but also their monopoly profits. A key objective of corporate strategy will be profitable entry deterrence. • Profitable entry deterrence occurs when incumbent firms are able to earn monopoly profits without attracting entry. Profitable entry deterrence depends on the interaction of structural entry barriers and the behavior of incumbents postentry. Profitable entry deterrence is not necessarily exogenous-incumbent firms can make strategic investments and engage in other behavior that magnifies the effect of, or creates, structural entry barriers and shelters both their market power and monopoly profits. • From a public policy perspective, the existence of entry barriers is also very important. If entry is timely, likely, and sufficient then attempts by firms to exercise or create market power will ultimately be unsuccessful. New entry will provide consumers with sufficient substitution alternatives that efforts to raise price above competitive levels will not be sustainable