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Microeconomic Theory

Notes production cost on any production level. Therefore, this cannot earn benefit. In this way, it is impossible
to this firm to enter in least right market. G is the entry gap which represents that established firms can
fix limit price above its LAC without attracting entrance.
Choice of Entry Barrier: According to Bain, choice of entry barrier will depend on demand curve on
entry limit price, shape of cost curve and expectations about their plans and expectations of entrant
firm etc.
Rate of Entry: Bain emphasizes on market portion and speed of entry till the rate of entry of new entrant
firms are possible. Faster the rate of entry, more flat will be the demand curve of least right industry
above the entry limit price. Slower the rate of entry, lesser will be the importance of entry barrier.
Market portion of entrant firm will be more in first condition and less will be in second condition.

Self Assessment

State whether the following statements are True/False:
9. Bain describes six possible expectations of possible entrant firm.
10. Entrant firm expects constant price on after entry level.
11. Bain understands only amount very expensive to obtain sums for new investment firms.
12. If three sources of entry barrier are taken together then limit price distribution becomes very complex.

17.2 Its Criticisms

Bain is the first economist who proposed limit price determination theory with the fear of entry. Instead
of this, following limitations are found:
1. According to Silberstein, Bain did not make a general principle of price under least right conditions.
He mainly established that which factor makes barriers in new competition in the industry mainly
in some experienced studies.
2. According to Koutsoyiannis, the biggest fault of Bain’s Model is that he focuses his studies on the
entrance of new firms. He does not include takeover of firms, potency of diffusion by the established
firms and cross entry in his studies.
3. Bain does not give exact to estimate or measure the rate of entry.
4. He does not explain the shape and benefits of entrant firm which can affect the fear of entry.
5. Bain only considers on entrant firm, where it is more fear of a big group in comparison to one or two
entrant firms. Some nearby or similar firms can present more fear of entry because of technological
closeness.
6. According to Koutsoyiannis, Bain has failed to see that product differentiation and economies of
scale can increase the possibilities of entry.

17.3 Summary

• If three sources of entry barrier are taken together then limit price distribution becomes very complex.
They can make strong each other or can dest may their effects. For example, can make large economy
of scale and very high barrier of product determination entry as shown in Fig. 17.5, represents a big
entry gap between high limit price P and competitor price P . Limit production Q is very less.
H C H
Therefore, a big entry gap and less production conditions are obtained by the established firms. As
a result, entry is terminated because entry barrier is very high.

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