This paper shows that (i) fixed costs of sufficient magnitude assure the existence of a vector of sustainable prices for the products of a natural monopolist—prices making him invulnerable against entry; (ii) nevertheless, fixed costs do not constitute barriers to entry; that is, they need not have undesirable welfare consequences; (iii) indeed, in market forms that we call perfectly contestable large fixed costs are completely compatible with many desirable attributes of competitive equilibrium; (iv) sunk costs do, however, constitute barriers to entry; and (v) finally, the profit and welfare consequences of entry barriers are described formally.

Journal Article Economies of Scale and the Profitability of Marginal-Cost Pricing: Reply Get access John C. Panzar, John C. Panzar Bell Laboratories Search for other works by this author on: Oxford Academic Google Scholar Robert D. Willig Robert D. Willig Princeton University Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 93, Issue 4, November 1979, Pages 743–744, https://doi.org/10.2307/1884483 Published: 01 November 1979

I. Introduction, 481.—II. Counterexamples, 482.—III. Economies of scale, 484.—IV. Technological regularity conditions, 487.—V. The profitability of marginal cost pricing, 488.—VI. Concluding remarks, 492.