Ricardian or monopoly rents? The perspective of potential entrants

Document Type



Published by Palgrave Macmillan Ltd. in the Eastern Economic Journal Vol. 32, no. 1, Winter 2006, Pages 19-30
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Eastern Economic Journal


The explanation for the positive relationship between concentration and profitability is one of the most controversial topics in the field of industrial organization. The interest in this topic is due primarily to the conflicting antitrust policy implications originating from two competing hypotheses: the market power hypothesis and the efficiency hypothesis. The current paper presents an alternative approach. It examines the competing hypotheses by focusing on the behavior of potential entrants. A key premise is that potential entrants respond differently to incumbents' Ricardian rents and to incumbents' monopoly rents.