Fixed costs of entry create an advantage for potential entrants since incumbents have already made these expenditures while potential entrants can avoid these costs.

Question

Quizplus · Accepted Answer

The advantage is to the incumbent.The incumbent ignores the fixed entry cost since it is a sunk cost.For the potential entrant,the fixed entry cost can be avoided if entry does not occur.Thus,the fixed entry cost is an added expense to entrants.

Fixed Costs of Entry Create an Advantage for Potential Entrants