Structural characteristics (3 3. Absolute cost advantages It may be the case that the incumbent firm has lower costs of production than potential entrants: at any common scale of operation the average cost of the entrant exceeds the average cost of the incumbent Fundamentally, the source of such an advantage must be that the entrant is denied access to, or pays a higher price for, some factors of production An absolute cost disadvantage puts the entrant at a competitive disadvantage, and in the limit the monopoly price of the incumbent may be less than the minimum average cost of the entrant: the result, possibly in the former, and certainly in the latter is entry deterrence Ownership of a superior ore mine or a key patent appears to provide an incumbent with an absolute cost advantage and therefore is a potential entry barrierStructural characteristics (3) • 3. Absolute cost advantages. • It may be the case that the incumbent firm has lower costs of production than potential entrants: at any common scale of operation, the average cost of the entrant exceeds the average cost of the incumbent. • Fundamentally, the source of such an advantage must be that the entrant is denied access to, or pays a higher price for, some factors of production. • An absolute cost disadvantage puts the entrant at a competitive disadvantage, and in the limit the monopoly price of the incumbent may be less than the minimum average cost of the entrant: the result, possibly in the former, and certainly in the latter, is entry deterrence. • Ownership of a superior ore mine or a key patent appears to provide an incumbent with an absolute cost advantage and therefore is a potential entry barrier