When are sunk costs a most effective entry barrier?
A)When the incumbent has incurred them and the entrant has not
B)When incumbents have long-standing relationships with suppliers and customers
C)When channels are few and hard to replicate
D)When a firm has a reputation for toughness or competes in multiple markets
E)When marginal costs are low and flooding the market causes large price reductions

Question

Quizplus · Accepted Answer

Sunk costs are most effective as an entry barrier when the incumbent has incurred them and the entrant has not, as the entrant would have to bear the cost of duplicating the existing investments made by the incumbent. This creates a disadvantage for the entrant, and may dissuade them from entering the market, thus protecting the incumbent's market share.

When Are Sunk Costs a Most Effective Entry Barrier