Product Differentiation: Goodwill I: The Basic Model

Abstract

Bain’s classical triad of barriers to entry: absolute cost advantages, economies of scale, product differentiation advantages allows different degrees of subdivision. The economies of scale phenomenon is perhaps the most uniform from the point of view of the economist interested in competition. But even here the results depend on specific circumstance as has been shown in Chapters 3 and 4. Generally speaking economies of scale can induce certain entry barriers, if time interdependence in production prevails. Absolute cost advantages, according to our theory, have to be split up as to the causes for these cost advantages. Some of these are indeed causes for barriers to entry. Some others are not. The product differentiation phenomenon is probably the most difficult to analyze, and the need for subdivision into different cases is particu­larly important.