Exit Barriers are Entry Barriers: The Durability of Capital as a Barrier to Entry

A Theory of Dynamic Oligopoly, I: Overview and Quantity Competition with Large Fixed Costs

“…Even when capital is not infinitely durable it may still deter entry as argued by Eaton and Lipsey (1980).…”

Options financières et opportunités intertemporelles d’investissement irréversible en incertitude

“…Comme l'ont montré Eaton et Lipsey, l'essence de l'engagement (commitment) en tant que comportement stratégique est la capacité de créer l'irréversibilité ( [23], [24]). Le véhicule naturel de cet engagement pour une firme est le capital à usage spécifique, c'est-à-dire le capital irréversible ou à fonds perdus, qui est à la source des rendements croissants à l'échelle [2] 3 .…”

An integrative framework of pre‐emption strategies

“…Ghemawat's (1984) study provided empirical support for Eaton and Lipsey's suggestion that capacity expansion by incumbent firms deters entry. In a further study, Eaton and Lipsey (1980) also suggested that irreversible investments serve as credible exit barriers that commit an incumbent to defend its market, which therefore deter entries. In support of this argument, an empirical study by Ghemawat (1986) showed that market pioneers could credibly signal their commitment to defend their market against potential entrants through durable investments.…”

“…Dixit, 1980 Theoretical Study Irrevocable commitment of investment alters the initial conditions of the post-entry game to the advantage of the incumbent, and deters entry. Eaton and Lipsey, 1980 Theoretical Study Irreversible investments serve as a credible exit barrier that commits an incumbent to defend its market. Hence, such exit barriers also become barriers to entry.…”

“…This is credible because, by incurring such investments, a market incumbent would suffer an even greater reduction in profitability if it chooses to accommodate entries (by not reacting aggressively), than if it chooses to react aggressively to entries. In this regard, investments in excess capacity (Dixit, 1979), capacity expansion just prior to entry by competitors (Eaton and Lipsey, 1979), and creation of exit barriers (Eaton and Lipsey, 1980), serve as signals of a market incumbent's readiness to aggressively defend its market.…”